Let’s talk about trading signals, now a day’s people believe that trading signals commonly refers to a signal service provider and that somehow these signal service providers know something you don’t.
Well here is the thing, they have no more access to information than you do, and a trade signal is only what you make of it, trade signals come in a variety of ways, for example if we were sat together having a coffee discussing a company and I happened to mention that with the current economic climate in Europe of the Coronavirus weighing down on the country and people not wanting to go anywhere, you may start to think , well if people are not traveling they are certainly not looking to buy cars so as a signal of potential market trade you can jump into your IQ Option platform and begin selling shares in the auto industry.
Its really that simple, so by setting up your IQ Option account you can also setup your very own trading signals and we will have a look at an array of possible signals we can find on the platform.
First of all, lets discuss technical indicators, this are usually the trader’s line of information straight off the chart, there are many of them so how do you know which will work for you?
Unfortunately, there is no way to know until you get some experience with them and try them out, this is how you will end up finally finding that one that one that really connects with you and allows you to see the opportunity in the market. Fortunately, though, IQ Option have developed a huge library of technical indicators so, there is plenty to choose from, and some act in a similar fashion to indicate over bought or over sold conditions and others indicate increases in the volatility of an asset.
As you can see, there is a big library to choose from, what some of the new traders may sometimes end up doing is actually overloading their charts with indicators, and this often ends up providing mixed signals and confusing the trader. In this business simplicity is key.
While it can be advantageous to use multiple indicators to try and get the highest probability outcome in your favour, when more than two indicators at the same time are used they can provide a trader with lets say a buy signal but one of the three indicators signals for a sell and while you can argue that you would always go with the side of the markets the majority of the indicators are suggesting, for peace of mind you do not want to have something conflicting with your trades.
So, let’s look at two possibilities, technical indicators are not the only trade signal possibility in achieving a trade with a good bias, there is also technical analysis such as support and resistance or supply and demand. Both are useful in identifying where there appears to be buying and selling interest in the charts.
Supply and demand refers to, in this case EUR/USD, the supply of Euros and the and the demand for it, so when price reaches a specific level there may be a large amount in demand for the Euro which would send prices higher or the may be a large supply of Euros which of course would send price down.
As you can by the fig above, when price traded away aggressively from a previous level, it became a sensitive price level for the supply of Euros, so naturally when the demand started to pick up and price began to trade back up to that previous level, it saw a lot of sensitivity and traded almost immediately lower, these are examples of supply and demand and how once you identify a level where price moves away quickly, you can keep it noted in your charts for a later date to note that price was in fact sensitive at these levels and that is a signal for a trade.
Similarly, to some extent is the support and resistance idea, based on identifying levels where buyers may be looking to support price or a level where sellers are trying to sell a currency or asset, support and resistance can work very well to provide you with trade signals either on its own, or, in combination with one of many technical indicators.
The trick is to find an indicators that would signal to you when a currency in this case the EUR/USD is either overbought or oversold, by matching the over sold condition with a level of support you can start to identify buy signals in the market, but always know which time frame you are looking at, as the daily chart largely is the greatest mover for intraday trading so if the daily chart is signalling that the EUR/USD is going down and the 5 min chart is signalling the market is going up, now you have a conflict in the trade decision and you can either consider waiting for more information to sell in line with the daily chart, or if you’re a scalper you may not be looking for a large move on the upside and you may strictly be looking to take advantage of the small moves intraday in the market even if they are against the intended daily direction as markets do not travel in one straight line.
Looking at the example above we can see how this would start to look like, as we notice that the price began, testing the level of resistance while at the same time, the RSI or relative strength index provided a signal that the currency pair was over bought which would indicate a strong selling opportunity and as you can see, from the line of resistance price traded aggressively lower.
So this is what a trade signal would look like but as we mentioned previously some traders may not like the idea of support and resistance and there for may choose a different form of analysis and there is not limit to the imagination, for instance you may use one of your trade signals to be technical analysis and another to be fundamental analysis, by looking at the number published by the economists under the economic calendar in your IQ Option trading platform, you may find that the industry experts expect a decline in the price of EUR/USD at a time that the news is to be released and you may also find that your indicator is showing that the currency is oversold, and in addition to this if you use two indicators together you may find as is with Bollinger bands, that the currency is in a tight consolidation (moving sideways) and there for can expect a large move away from that tight price action.
So once again you have a perfect trade signal here now how would that look on a chart.
Here we have the example if you were to use, Bollinger bands with the addition of the RSI indicator, now as I mentioned Bollinger bands indicate a contraction of volatility, what is useful to know about that is markets move between trending and consolidation, so when a market is consolidating, (moving tightly sideways) then you can expect a measure of volatility to come in and hence to start trading away, or expanding the volatility. The RSI indicator, shows when price of course is over bought or oversold, you will know if it is one or the either by tracking the line at the bottom that appears to be moving between the red and green line with the levels 80 and 20, any move toward 20 indicates an oversold condition and signals a buying opportunity while any move towards the 80 level indicates overbought and provides a signal for a selling opportunity.
So when these two are used together as you can see for the fig above the Bollinger bands went into a tight price and the volatility went down while at the same time, before the economic event took place and the news was released, price according to the RSI indicator went into a fast overbought condition signalling a strong sell in the price, and from there saw a step decline in the assets price.
Now lets say you are struggling to find out what to trade or which currency pair to trade, a solution to that and a way IQ Option has looked to support trader that may feel lost at times when the asset they like to trade goes quite is to show traders where the most profitable traders are trading
As you can see the trader is currently trading USD/JPY on digital options, and if this wasn’t enough you can always jump onto the chats and see what the other guys are doing, there is a huge community of traders in IQ Option and most of them are quite happy to share ideas on where markets may run to and how to take advantage of these opportunities
Now if it happens that you prefer to be a long term trend trader, then you may be seeking a combination of indicators that would provide you with the best fit to identify long term trends in price, well look no further, two indicators provided on the IQ Option platform is the Awesome Oscillator and the alligator indicator, which were both developed by Bill Williams who is a well known long term trend trading using higher time frames as we mentioned above about the daily chart, to trade these long term trades. The alligator indicator is a trend following indicator that not only signals the trend but also the strength in the underlying trend, while the Awesome Oscillator in combination will signal momentum in price to indicate to the trader when to get into the trade and when to exit, its this relationship between indicators that traders must consider when looking to trade with technical analysis, how these indicators look on the chart is displayed below.
As you can see, as price crosses the below the trending indicator, this indicates that the trend direction has shifted from bullish to bearish or in other words going down, at the same time this cross takes place the momentum indicator starts to decline which provides traders with their entry signal to enter the market and trade on the potential sell signal provided.
As you can see from the discussion above creating trading signals is something that can be done by you the trader, it is not always necessary to subscribe to trading signals from others, but of course much like anything worth doing this requires some work, but remember your trading account is now your business so what better way to run your business than to be in full control of uncovering what moves the markets and how you can take advantage of the opportunities that present themselves, whether you are looking to understand the macro economic events that drive the price in the markets globally or want to stick to trading on the technical analysis front, consider that there will be a learning curve and IQ Option is there to provide you a huge library of educational resources, a community of traders to get you started and to share ideas and a wide array of indicators on the platform for you to use, and define and organise your own strategy and build a model to help you develop your own trading signals. Along the way you will have access to your news feed and economic calendar straight from the IQ Option terminal so that your attention is not cut by searching third party websites when you need to focus the most on what the markets and your strategy is telling you. Combine this all with a good risk management plan that will keep you on the low risk high profitability side and you have yourself a complete strategy.
Safe trading, and remember, this is your business, always treat it with the respect your business deserves.