How to check the quality of the trade signals

by Darwin on February 22, 2020

Finding trade signals is not all hard. The traders are busy executing random trades and eventually they blow up the trading account. The reason for which the success rate is so low in trading, the quality of the trade execution. Very few traders know the proper way to assess the quality of the trade signals. Right after finding a signal at the support and supply zone, the traders execute the orders. But the smart traders at Rakuten analyze the quality of the signals. They always think about the worst-case scenario before placing any trades.

To be a skilled trader, you must learn to check the quality of the trade signals. Things might seem hard but we will make things easier. Just check the basic parameters mentioned in the article and you will be fine with the trade setups.

Are you trading with the trend?

 The first thing is the check the trend. If the trades are executed against the major trend, the signal is not all good. Though the market can change the trend without any prior notice, it’s safe to assume the past trend will dominate the price. So, trading against the trend is more like digging a big hole in your ship. Does this mean you need to learn about trend trading strategy? Since the trend trading method is the most effective way to secure profit, you must learn to trade with the major trend. However, never expect to win the trades just because you have opened the order in favor of the trend. Trading with the major trend is just a basic step to reducing the number of your losing trades.

Are you trading the best broker?

 You must trade with the best Forex broker to rely on the technical analysis. Relying on the price feed of the low-class broker is a very big mistake. For instance, you might spot a nice bearish engulfing pattern in the AUDJPY pair. But this pattern might not be prominent in the high-end trading platform used by the traders at Rakuten. Due to latency in price feed, the price action signals greatly differ in the low-class broker. So, try to find the best broker so that you always know you are dealing with the accurate price feed. Unless you trade in a premium trading environment, there is no assurance of making consistent profit from this market.

Analyzing the fundamental factors

After you find the technical setup, you need to analyze the fundamental factors. Let’s say, you have found a long trade setup in the USDJPY pair. Instead of opening a long order, you need to analyze the economic condition of the United States and Japan. Let’s say, U.S economy is under heavy stress since they are failing to add more jobs to their economy. This means the green bucks are most likely to trade lower against most of its major rivals. So, executing long trades in the USDJPY pair based on the technical data will be a very big mistake. You must relate fundamental and technical data to find the best signals.

The risk to reward ratio

Analyzing the risk to reward ratio is one of the easiest ways to assess the quality of the signals. If your trade setup is capable of securing a 1:1 risk-reward ratio, you should never open a new trade. Unless you are getting a risk to reward ratio of 1:4+, you are not dealing with a good signal. Trading with high riks to reward ratio allows the traders to recover the loss. Most of the time, the traders get lost since they don’t know the importance of risk to reward ratio. After losing a few trades, they find it hard to recover the losses. On the contrary, the pro traders embrace the losing trades with a big smile since they know the perfect way to cover up the loss.

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