Using failed signals as trade opportunites

[squalodon]

Someone taught me before that when trading signals fail.. most of the time.. the opposite direction of the signal.. might bring about a strong move..

For example: a power candle or outside bar that retraces and goes through the 50% level of the current bar might be an early indication for a 2 bar reversal.

I personally have traded the above example before and most of them are extremely profitable... especially if it reaches an important turning support or resistance..

Guys i was thinking instead of just trading the signals that we are getting why not trade... the signal failures?

If we can study the "failed" signals.. we could also salvage stopped out trade. any thoughts on this guys?

Maybe we can compile all the "Failed signals" and find ways to profit from them?

 

[TheForexGuy]

Re: power bar Failure signals as entry points

I really like you're thinking here.

I have thought about this heavily a few years ago and did discuss it with my trading buddies at the time. The idea was,

"A failed signal is a trade opportunity within itself".

Once idea that I came up with was sort of split your risk up between two trades, sort of like the split money management system. In this case you set up trade 1 normally but with 1/2 your normal risk, then trade 2 is set up by pending order at the 'stop loss' end, essentially being the 'reverse trade'.

This is thinking worse case scenario incase both trades don't work out you only lose your normal risk. But the idea is to catch a breakout which ever way it decides to go. Think of the recent GBPCHF bearish rejection candle trade. This failed signal was an opportunity in itself to go long.

The only concern here is to not spark 'revenge trade' impulses on failed signals but instantly trading the other way. However by using a 'set and forget' strategy here but setting up the two orders at once I believe you can do this safely.

The worse case scenario would be a volatile day with wicks poking out each end, triggering both trades and stopping them both out. But if we use the split money management model we can walk away with only our normal loss.

 

[squalodon]

Wow thanks for the insight.. That split trade idea seems like a good idea.. Nice is this something that might get added to the price action protocol any time soon?

From my experience.. I like the "failure signal" for power bars.. And 2 bar reversals.. Coz it seems to be high probability when it already hits 50% retracement of the current candle.. However i was thinking about the pinbars.. And im sort of new to this so i don't know if a pin bar failure could constitute a signal.. Im sort of thinking that if a pinbar fails it would just go and consolidate or range?

 

[TheForexGuy]

Wow thanks for the insight.. That split trade idea seems like a good idea.. Nice is this something that might get added to the price action protocol any time soon?

Maybe, but I don't want to over complicate the system, more research and testing needs to be done here before we essentially 'go live' with it. I am also heavily interested in renko candles and have been on-and-off researching these guys for the past 2 years.

This whole 'reverse trade' thinking is how I came up with the breakout trap and reverse system. I like to remain open minded and am always looking for that extra edge.

However i was thinking about the pinbars.. And im sort of new to this so i don't know if a pin bar failure could constitute a signal.. Im sort of thinking that if a pinbar fails it would just go and consolidate or range?

I think you run the same level of risk with all the signals of reverse trades just being triggered by a last burst of trading volatility before the market dies.

 

[squalodon]

I see what you mean about the adding on new stuff.

To be honest the price action protocol is one of the most "clean" and simple trading systems i've ever read.. Very precise and clear. The risk is also well defined.

I get what you mean by not over complicating stuff.. Since PAP looks so neat and clean already..

Renko candles? Wow haha i've heard of them but i don't know what their for.. i can't wait to see the new stuff sir...

The renko candles looks complicated lol...

 

[marketstudent]

From my own experiences, this is a very powerful concept and I am much more flexible these days about reversing my position if: what I expect to happen doesn't happen.

 

[squalodon]

From my own experiences, this is a very powerful concept and I am much more flexible these days about reversing my position if: what I expect to happen doesn't happen.

Any trade signals that failed that you took market student?

I personally have found that a 50% retracement of a outside bar and power bar.. is a good failure trade signal.

 

[vasude]

hi squaldon ,

did you trade gbpnzd this week, its a failed signal ,sell has triggered without breaking upside ,i hope you racked the pips