Finance

How To Understand Forex Signals?

Four days a week, Monday through Thursday, I post Forex signals ( technical analysis) for the seven most popular USD currency pairs. Once published, I am no longer able to change them, and market conditions can change drastically.

My goal in posting these signals is to give Forex traders the best advice, ideas and interpretations possible once a day when the markets open, focusing on day trading, due to the fact that of its popularity over longer-term trading methods.

In my opinion, it is easier for most people to make money by trading daily charts, making buy or sell decisions only once a day, but I understand that most of my readers are day traders and I therefore try to meet their needs as best as possible.

Since signals are designed to be as useful as possible, for as long as possible, the main tool I use to define my signals is identifying specific prices, or sometimes narrow price ranges that the market is more likely to find. ‘perform a reversal. These prices are commonly known as ‘  supports and resistances  ‘, but you can also think of them as pivot points.

All of my signals identify at least one pivot point, and usually two: a price below the current price (at the time of writing) that can act as support, and a price above the current price that can be resistance.

How to use Forex signals?

Each signal begins with a discussion of the prospect of an open position that could have been generated by yesterday’s signal on the same currency pair.

The analysis then suggests the best times to open a new position and the size of the position that may be reasonably risky in a market on that day. The following section identifies the likely support and resistance levels with an explanatory table.

Following the signal means noting those levels and monitoring the price for the recommended hours to see if it reaches any of them.

When the price hits a resistance level after strengthening, you wait to identify a bearish reversal in the price, which means you think it will retreat.

When the price hits a support level after going down, you wait to identify a bullish reversal in the price, which means you think it will go up. The big question is how do you identify such a price reversal at the level where it has a strong chance of being the best entry point into a winning position?

How to identify a price reversal?

I believe in my experience that the best price reversals take at least an hour to happen, and usually longer. We must therefore find a compromise between making an early entry with a high risk / potential cost ratio, and waiting for things to be clearer before getting started. For example, let’s say the price is 1.0950 and the level at 1.1000 has been identified as resistance, and the price then increases to reach the level of 1.1000, resulting in the appearance of a strongly bearish pin bar reversal candlestick formation on the 5 minute chart.

 It can be a great entry and maybe the price will drop sharply and not return to 1.1000 for the remainder of the day, but acting so quickly poses a high risk of being wrong. That is why I recommend to wait at least for a 1 hour candlestick to form before entering the market. A bearish pin bar reversal candlestick is a stronger indicator on the 1 hour chart than on the 5 minute chart.

I have to admit that even if you use a slower timeframe, such as the 1 hour chart, identifying an interesting reversal is difficult and often takes practice. As a general tip, I recommend looking to identify a candlestick formation as a pin bar, inner candlestick, outer candlestick, or swallowing candlestick rejecting the level quickly and decisively.