Higher time frames helps to find the high-quality trade setup in the market.But do not get fooled by thinking that the time frame is the only factor that defines a good trade signals. So, the question is, what consists of a high-quality Forex signal? Regardless of the time frame, some of the crucial elements are:
- A consistent and accurate repeating pattern
- A signal that provides high reward potential and low risk
- A way that offers a crystal-clear design of entry and exit
Now to fully understand the above elements, let us break down each component.
Looking for the repetitive patterns
On a daily range, the markets are changing and contracting massively. Twenty-eight percent of the daily volume comprises the HFT algorithm, but it was 10 percent three years ago. So considerably, this would vary how it unfolds the price action as they are now using various technology, techniques, and patterns compared to the traditional human trader. Remember, if you intend to trade with confidence, you should learn the basics of chart pattern trading at Saxo capital markets. Use their free educational resources and develop your skills so that you can make better decisions at trading.
Although there are changing patterns, some patterns repeat themselves in the market, and a real student of price action on all time frames will see the ways. A high-quality signal’s key ingredient is the price action pattern as long as it is consistent with the outcome and formation.
Risk to reward ratio
In relationship to the target, the stop size constitutes a high-quality signal. The more excellent target and stop measure × reward v. risk, the more outstanding signal quality. Still, it needs to figure the accuracy of the equations as a real measurement stick of risk and compensation.
Regardless a 100 pip stop with a winner of 200 pip precisely offers the same potential of profit as a 30 pip stop with a 60-pip winner. So, assuming you risk the same in terms of equity percentage on each trade, they offer the same profit potential.
Important factors to consider
How many times would a trader be able to receive an 11x or 13x reward by risking 100 pips, meaning from the trade could a trader grab 1100 or 1300 pips? If not that many at all, then a trader will not risk 100 pips ever.
But what about gaining 110 by risking ten pips? On a daily chart, 1100 pips are not ordinary, but 110 pips move can occur quickly every day. And once again, the latter offers more potential for profit. So, as a professional trader, try to trade the market with stable mindset and aim for higher risk to reward ratio.
A Pattern That Offers a Crystal-clear Entry and Exit Design
For any high-quality signal, it has to be:
- Accurate and repeatable.
- Offer high reward potential/low risk.
- Offer a clear pattern of entry and exit.
Let’s start with an example that for a slight four-pip loss, the first attempt of a trader failed, but he received an opportune moment to get in through his second attempt. Unfortunately, the seller becomes active immediately after his entry taking place. The trader ended up banking on 12 pips stop with 25 pips, and to risk play, he gets a 2x+ reward, all he has done in 15 mins.
Now, look at his risk control and how he successfully controlled the risk with confidence and precision. This success becomes possible because he had a crystal-clear pattern of entry and exit, and it is needed highly. This was a blatant A+ high-level setup, and it needs to short out preciously.
Moreover, the trader had a reasonable strike rate in the example, and he hit the strike rate with accuracy. To complete this trade, he had to be disciplined and patient. A trader doesn’t need to wait for so long as these trades come daily. A trader needs to learn about the spotting of great-quality price action setups.