Today I will tell you about one trick that will allow you to quickly identify false signals and close losing positions in time. The system is called the “5 candlestick” filter. If you haven’t come across it so far you will definitely like it.
How This Filter Works
Experienced traders use a variety of filters to detect false signals and exit a trade on time:
- Trading volumes
- Indicators
- Cluster charts
However, these methods are not suitable for every situation. Therefore, traders have developed, or rather discovered, a new universal filter that works in almost every situation.
This method is incredibly simple and will suit even the most inexperienced trader:
- If within 5 candlesticks after receiving the signal you didn’t make a profit on your trade, then the position should be closed. Lack of profits tell you that for some reason the signal turned out to be false.
If you use this method, don’t wait till your position is closed by Stop Loss. You can cut your losses even further and exit the trade immediately after the formation of that fifth losing candle.
Advantages of the Filter
- The main benefit of this filter is its versatility. Most strategies and methods work best on higher timeframes (4-hour and above) as they provide the most accurate signals. The “5 candlesticks” filter works equally well on any chart, including the most popular one - 1-hour timeframe.
- This method is perfect for any trading strategy, any forecasting way, and any market analysis method. No matter what those are, you just have to check your profit after the fifth candlestick closes.
- The simplicity of this filter makes it accessible even to novice traders. It works especially well in conjunction with other signal verification methods.
- You only use your eyes to confirm the signal so the filter doesn’t interfere with the operation of other indicators or signals.
- And of course its most useful feature is that you keep your losses to a minimum. If at the same time you allow your profitable trades to work out at their maximum, then the level of your earnings will increase significantly.
In the next article I will tell you how to use the “5 candlesticks” filter in trading and give you a couple of examples. Hopefully, this will prove to you the effectiveness of this method. However, there is no point in relying solely on the filter. Even if you learn to control your losses, without a good trading strategy, you will not be able to make a decent profit.
That’s it for now. See you in the next article.