Look for a signal that marks a false breakthrough and has a clear shadow line.
The typical signal with high profit probability is a reverse signal like a needle bar, with obvious shadow lines protruding to the key price. When the lower shadow line of the needle bar signal pierces the key price, it usually means a false breakthrough, which makes the signal more referential and indicates that the market may reverse.
In the GBP/USD chart below, two examples of pin signals clearly tell us that the price has pierced an important resistance level and formed a false breakthrough. Both of these signals caused the price to fall:
2. Long shadow line is a signal with high profit probability.
The shadow line of needle bar is very important. The signal of long shadow needle is stronger than that of short shadow needle. The longer the shadow line, the greater the possibility of price reversal. It can't be said that every long shadow needle stick will have this result perfectly, but we can draw such a conclusion with great probability.
Don't "gamble" on the breakthrough, wait for the breakthrough to be determined.
Many traders are trapped in breakthrough trading, because many breakthroughs have been proved to be false breakthroughs. Nothing can guarantee the truth of the breakthrough signal. Therefore, you can't "gamble" when breaking through the transaction, you can only wait until there is more certain information, and wait until the price closes at the breaking side. After the breakthrough, there will always be opportunities to re-enter, but the price of "gambling" is much higher.
4. The long shadow needle stick after continuous fluctuation is as effective as the reverse signal.
The long shadow needle stick can be used as a tool to filter signals, especially when the price fluctuates continuously in one direction. It often marks an important market reversal point, even a long-term trend change.
5. In the trend, look for the continuous signal after the price falls back to the support level/resistance level.
The usual method to filter signals is to find the retracement near the key support/resistance level in the trend market. For example, the GBP/USD in the chart below shows an upward and downward trend. In the upward trend, the price retracement is small, but the trend is clear. pin bar is confirmed at the convergence point of the key support level, so this is a possible high-profit trading setting. In the downward trend, the retracement range is larger, and the key resistance level is resisted in the larger downward market, so it is also a signal of greater profit potential.
6. Don't trade during consolidation.
If trading signals appear in a series of consolidation, trading is not recommended. Such a signal has little effect. Be sure to wait for the current consolidation trend and breakthrough signal. The "OK" here means that this breakthrough signal closes outside the consolidation area.
7. Find the rendezvous point
The meaning of cohesion is obvious. There must be at least two factors to support this trading signal, such as the convergence of key prices and effective moving average levels. In short, the more convergence factors, the stronger the signal. Convergence can increase the validity of any trading signal, so convergence point is also an important trading signal filtering tool.
8. Avoid signals appearing in the "vacuum zone"
One of the best filtering methods is to avoid signals that lack support or convergence factors. If a trading signal appears out of thin air, there is no basis and support, and it is best to give up. Daytime signals often have such characteristics.
9. You don't need to think too much about whether a signal is valid or not.
We discuss how to filter signals, in fact, in the final analysis, because good signals will have their own confirmation properties. When they appear, we don't need to struggle or convince ourselves to try. The market will never lack good trading opportunities. Once there is a good signal, we will know.
Traders often face missed trading opportunities or bad trading, so keep trying to filter bad signals and only trade opportunities with great profit potential, which will make you better and better in trading.