How to Filter Good & Bad Price Action Entry Signals

What do you get if you put two traders side by side for four weeks with the exact same training and trading plan? Most likely, you will get dramatically different results. Trading is a highly individualistic profession, and no two traders think exactly alike or possess the same level of natural trading skill, intelligence, talent or intuition. When you’re a student of the markets trying to develop your ability to find top-quality trading signals on the charts, even after years of study, it can still be mentally challenging and stressful.

There is obviously a plethora of variables and influences that affect a trader’s decision making process when analyzing a chart, finding a trading signal and then executing a trade.

It’s probably safe to say that you struggle with your trading decisions sometimes, you struggle to pull the trigger due to a lack of confidence, or you struggle because you aren’t sure if this is a ‘good signal’ or a ‘bad signal’. Knowing what to look for and what the best signals look like is one of the main steps to increasing your chart-reading skills and confidence in your trading ability.

The purpose of this article is to provide you with a guide to ‘filter’ your trading signals and build your confidence.

1. Look for a signal with a protruding tail that creates a false-break of a level. A false-break of a key level is a very important event, it shows that the market could not sustain itself below or above an important level and that a move in the opposite direction is highly probable.

2. A long-tailed pin bar is a high-probability pin bar. This essentially means that a longer-tailed pin bar is more significant than a shorter-tailed pin, and that longer tail helps to “spring” prices in the opposite direction. It doesn’t mean that ‘every’ long-tailed pin bar works out perfectly, but certainly many of them do and it’s a high-probability setup that should be a staple of any price action trader’s trading plan.
3. Don’t “bet” on a breakout…wait for confirmation instead. Don’t bet on a breakout before it happens, instead wait for a close above or below the level, because you can always enter later after the breakout on a retrace.
4. Long-tailed pin bars work very good as reversals after a sustained move. Оften marking important market turning points or even long-term trend changes.
5. Look for continuation signals after a pullback to support or resistance in the trend.
6. Don’t trade signals in tight “chop”.