It's no secret that trading in the financial markets begins with the development of a trading system. At the same time, traders use both their own practices and those of others, which they modify according to their own needs.
But any trading system gives a lot of signals to open trades, both true and false. Therefore, to process them, use filters on Forex... Today I propose to take a closer look at such filters.
The conditions of a trading strategy are a set of certain rules, in the presence of which actions are performed by a trader. These may include: opening or closing orders, or take profit, etc. What will the trader gain from applying filters on Forex?
“The most important thing is that these algorithms help to exclude false signals provided by the trading system. "
By eliminating such errors of the strategy from trading, we will protect ourselves from losses, or significantly reduce the number of negative results. The next positive aspect of applying filters in Forex is the optimization of the trading system itself.
Filter categories in Forex
All filters that are used by traders to sort signals in the Forex market can be divided into several varieties (categories).
To the first category include filters that are based on the use of Forex technical indicators. Here, to filter false signals, various technical indicators are used, which can be included in the standard set of the MetaTrader terminal or installed separately. Usually in such a trading system it is used to receive signals, the second part of the indicators is used to filter out false signals.
For the second category such filters are used in Forex, which are based on the use of graphical analysis. Filters like trading systems are very popular among traders lately. The essence of applying these filters is that when a certain combination of bars or candles appears on the chart, we expect confirmation of signals by subsequent bars or candles.
Next category Forex filters can be classified as temporary. The simplest example of a time filter in Forex is checking the validity or falsity of signals over time. That is, when a certain signal appears, it is simply worth waiting for a while, and then it will be clear whether this is a false signal. Of course, this is just one example of such filters. The disadvantage of such a filter is the time itself - the wait can drag on and turn into a waste of time.
Another category worth noting- these are mixed or combined filters on Forex, which can include a set of instruments of various categories. In my opinion, these are the most effective "cleaners" in the Forex market, which allow leaving situations with a high probability of a positive outcome to work.
Let's now look at examples of filter application in trading in financial markets.
Indicator Filter Trend Filter
The technical indicator belongs to the types of oscillators and is designed to determine the trend and movements in the market.
You can download it here:
The indicator is located in a separate window and is a line that changes direction and color when the trend direction changes. If the instrument line is colored green, then there is an upward trend in the market, or a flat movement with this trend.
A yellow line indicates either a trend change or a state of uncertainty. When the line is colored red, there is a downtrend or flat on the market.
The Trend Filter indicator is very effective in determining the direction of the trend. It allows you to exclude various market noises and false signals. Developers do not recommend using it as the main indicator of a trading system.
But if you use Trend Filter to filter out doubtful situations, then it will be most effective for the trading system. For example, if we have a sell signal and the indicator line is in the green zone, then it makes sense to ignore such a signal and wait for the trend to change.
Forex filters for false level breakouts
Another important, in my opinion, example of the application of protective algorithms in the Forex market is the identification of false breakouts of key support and resistance levels. As you know, these boundaries play an important role in the analysis of the price movement of currency pairs.
Often traders wonder if a breakout of such levels can be considered a serious market intention to move on, or is such a breakthrough aimed only at misleading market participants? Let's look at the options for filtering false breakouts of important price levels.
The easiest way to determine if a price boundary breakout is realistic is to move the price above or below the price level. If the price, after breaking through an important level, passes only 15-20 points and then returns to this level, then with a high degree of probability we can talk about a false breakout.
Analyzing the history of price movements, it can be noted that for the main currency pairs, a movement by 20-30 points after the breakout of the price level is not a true breakout, and for cross-currency pairs, the limit of false breakouts can reach 70 points during volatile price movements.
As an example, we can observe a false breakout of the resistance level for the USDCAD currency pair. The price, having broken through the important level of 1.3165, went through to 1.3187, and then returned back. The breakout of an important level turned out to be false, after which a downtrend began.
So, let's summarize our review.
“Filters on Forex are not an independent trading strategy, you shouldn't forget about it. This is just one tool for determining whether signals are realistic. "
But the use of such filters in the Forex market will help to reduce the percentage of unprofitable trades and receive more accurate signals from the trading system.
It is also important to cancel that the older the timeframe used for trading, the better the false signals will be filtered out. That is, the most effective use of Forex filters will be in medium and long-term trading.
Hello dear traders!
Many of you have probably already heard that each trading strategy should be selected and sharpened to suit the needs of the trader individually. That is, it is not necessary at the same time to create a unique system from scratch, develop new indicators or some kind of trading tactics that only you know about. It is enough to take any working strategy and try to change it so that it is convenient and understandable for you to work with it.
One of the ways to do this is to use Forex filters, we will talk about them in detail in today's article.
By the way, this article is a continuation of this topic on filters (you can read part 1). In the first part, filters were considered specifically for the technical part of trading (breakout, quantity after level breakout, filter for exiting trades, etc.), but in this second part, we will talk specifically about fundamental forex filters that will cover all trading on the strategy as a whole (and not its individual elements). So let's get started.
# 1. The 1st filter that you can apply to your strategy is trading hours limitation(will be relevant only for intraday traders). Everyone has long known or heard that the most active hours for intraday trading are the European and American periods. This begs the question, is it worth the trader to trade during this period of time?
Let's take a look at the statistics from the international broker FXCM over the past few years according to the 5 shown in the figure.
The chart shows the probability of getting a profit on an open trade, depending on the time it was opened.
The time in the figure is indicated as NY, so if we translate it into Moscow time, then the highest probability of making a profit on transactions for traders is from 22:00 pm to 14:00 pm Moscow time. Agree unexpected and interesting statistics. But since trading at night is not an option (it is not convenient both physiologically and technically, and during this period the market is in most cases), for an intraday trader the optimal time to work is from 10:00 am to 2:00 pm (by MSC).
What are the benefits of such a filter to limit trading hours? Firstly, since all important fundamental news comes out after 15:00, and the price after that can behave unpredictably, we turn off this period from our trading. Secondly, in the hour interval of the European session that we specified (from 09:00 to 14:00), as a rule, one-way price movement is observed, which makes it easier to analyze the situation on the market.
The introduction of this simplest filter can improve the results or even transform your strategy from a losing one into a profitable one. Also, using this Forex filter, you can additionally check at which hours trading according to your strategy brings good results, and at which bad ones, and, as a result, exclude the latter.
No. 2. The next forex filter is seasonality filter... Many are aware of the fact that trends in certain currencies can arise at certain periods (seasons) of the year. Let's take a look at how seasonality is reflected in currencies and how you can use it in your trading.
So, based on that, let's look at the statistics again:
Here seasonality data is presented for futures (for Euros and other currencies), but for currencies, this principle will be identical. Data source and details are provided here.
The chart above shows the average price movement for the Euro, which is divided by months, respectively, for 5/10/15 years.
Also on other tabs, you can separately view the data for the same:
5 years:
10 years:
Pivots (circled - bottom, circles - tops) are displayed on each of the individual charts. when the price changed its direction in the opposite direction. Accordingly, if we superimpose these charts one on top of the other, those areas where pivot points or price movements coincide, we should pay attention to them.
How can this be used? According to these data, if the currency has been growing from March to May for 15 years in a row, then, accordingly, during this period, the priority should be placed on buying the Euro currency, and the strategy signals should be filtered by this criterion (it is optimal for working on daily charts).
I must say right away that this is by no means some kind of golden rule, but it is also stupid not to take it into account, since it is based on long-term statistics.
No. 3. The next and last Forex filter that we will consider in this article is volatility filter... I would like to draw your attention to the fact that if you trade intraday, I definitely recommend that you add this filter to your strategy.
As you probably already know, the volatility of a currency pair is how many points, on average, a currency instrument can pass over a certain period (maybe an hour or a day). Read more about the volatility of currency pairs in the article.
Volatility data for any currency pair can be viewed at this site. There you can select the currency instrument you need and the volatility data for it will open by the hour and by the day of the week (I advise you to look exactly by the day).
For clarity, let's look at an example:
The figure shows volatility data. On Tuesday, it has one of the highest volatilities (150-160 points on average over the last 10 weeks).
How can you use this in your trading? Let's say we are trading on a given currency pair on Tuesday, and 2 situations may arise here.
- If the chart for the pair is ascending, and we received a Buy signal according to our system, but the pair has already passed about 50 points from the Low point (and as we already know the average volatility on this day is about 160 points), then theoretically we still have we can count on the price move upwards by 100 points and safely open a deal (according to the rules of the strategy).
- And the opposite situation, if on that day the pair has already passed its 160 points, then when the same buy signal is received, the point in its implementation disappears, since the pair has already exhausted its potential for movement on that day. Accordingly, it is better to ignore the entry into the trade.
Thus, the volatility filter serves as a kind of confirmation signal (or permission) to open a trade using an intraday strategy (it is optimal to use timeframes up to H4 inclusive).
Well, comrade traders, today you still received useful buns to improve trading results. I recommend that you think about how you can apply them in your trading, test them on history, and implement them into your own.
I have everything for today, I think the information was useful for you, if there are any additions on this topic on your part, please write in the comments.
The Trend Filter indicator is a quality filter that helps you quickly identify the current market situation. Of course, you can try to conduct a simple visual market analysis, but in terms of objectivity it will be ineffective.
The application of the Trend Filter, which uses a special algorithm in its work, allows you to constantly analyze the market and obtain objective data.
Description and settings of the Trend Filter indicator
Everyone knows that there are many ways to determine the market state, but the use of the Trend Filter indicator is one of the most effective methods at the moment.
Immediately, we note that this indicator, as its description shows, is another one, but Trend Filter differs from them in that the main task of this algorithm is is the display of the trend and flat without a specific definition... In general, we can safely say that the Trend Filter indicator is a trend algorithm, for which all the main features of this group are inherent.
Having carefully studied the description of the Trend Filter, we see that the indicator is installed in the trading terminal in a standard manner, so we will not dwell on this issue in detail. The indicator is placed in a separate window - at the bottom of the main field of the price chart.
After installation, in the indicator window, you will observe a single line, which during the operation of the algorithm can change its color to green - an upward trend, red - a downtrend, yellow - a state of uncertainty.
Now let's look at the description of the settings, which in the Trend Filter indicator are quite simple, since they consist of only two main parameters:
- Nbars - defines the period;
- MA_Period - defines the period.
Nbars is directly responsible for the period of the indicator itself and the higher it is, the less sensitive it becomes in relation to the market movement.
Ma_period is a parameter that is responsible for the period of the moving average that smoothes the indicator readings.
Trading strategy based on the Trend Filter indicator
So, we already know that the Trend Filter indicator shows traders the presence of a flat or a trend in the market, and if there is a second, also its direction. This is the basis of the trading strategy we are considering using the Trend Filter.
As you know, the higher the time interval used in trading, the more reliable it will be, therefore this trading strategy provides for work on the H4 chart. We will use the EUR / USD currency pair as a traded instrument.
Set up the Trend Filter indicator as follows:
- Nbars (50),
- Ma_period (9)
- and set the levels 0.899, -0.899.
Entry conditions according to the Trend Filter indicator strategy
Buy trades are opened when the Trend Filter, being below the -0.9 level for more than 7 candles in a row, draws a red line, and then draws a blue segment, rising above the -0.9 mark. We enter the market at the next candle. StopLoss is set at a distance of 30 to 60 points beyond the nearest local minimum.
When the profit reaches 30 points, you can move the trade to breakeven and close 50% of the open position volume. When the profit reaches 50 points, we start the rest of the transaction volume at the Trailing Stop 50 points long.
We will open sell deals when the Trend Filter, being above the 0.9 level for more than 7 candles in a row, draws a green line, and then draws a blue segment, falling below 0.9. We enter the market again at the next candle.
Set StopLoss distance from 30 to 60 points beyond the nearest local maximum. Exit from a sell trade is done in the same way as in a buy trade, but in a mirror image.
It is necessary to take into account some of the features that this strategy of trading on the Trend Filter indicator implies:
- you cannot trade while exiting;
- you cannot trade when the Trend Filter indicator signal appears on candles with excessively large bodies;
- it is necessary to close positions if the Trend Filter returns back to the flat area.
Trend Filter indicator overview
Hello everyone, today I decided to talk about filter indicators, but before proceeding to their direct description, I consider it necessary to make a short introduction. Surely you already know that there are no completely win-win trading strategies, sooner or later losses may occur. If you open deals for all signals of only one strategy, then your total profit will decrease somewhat. In order to avoid unnecessary losses, experienced traders use filter indicators, which we will talk about today.
What are indicators filters
The word filter means the performance of certain actions, the main purpose of which is to filter out false signals.
Now I suggest you consider the most common types of filters:
- Indicators. Experienced traders, as a rule, use several indicators in trading at once, where some act as the main signals, and others as filters for false signals. Many trading strategies that are effective work exactly according to this principle.
- Time filters. These filters are most often used during time, as time plays one of the main roles in such trading.
- Candlestick and graphical analysis. It is about finding a certain pattern that is a harbinger of a certain price movement.
- Combined. These filters take into account several factors such as time and indicators.
In indicator trading, almost any instrument can act as a filter indicator, the choice of which should be made depending on the main one.
Popular indicators filters
Filter indicators are not always intended solely to filter out false signals; they can also be used as basic tools. For a clearer understanding, I suggest you consider an ordinary moving average as an example. Despite its simplicity, it is often used as a supplement to the main trading strategy, namely to determine the general trend in the market. If the main indicator offers to open a sell deal, and the price is above the moving average, then such a signal is recommended to be ignored and vice versa.
Various oscillators can also be classified as effective filter indicators. The well-known Stochastic is perfect for these purposes, showing overbought and oversold zones. So, for example, if the main strategy issues a sell signal, and the stochastic is in the oversold zone, then such a signal should be treated with caution.
Various indicators built into MT4 are also used as filters. For example, it does not display overbought and oversold zones, but it allows you to identify a strong trend. Yellow color indicates a strong trend, while red and yellow indicate the presence of a flat.
Universal indicators filters
It is impossible to tell about all the filter indicators in one article, as there are so many of them. I will try to tell you about the most effective and common indicator filters. I call these tools universal, as they are suitable for almost any trading strategy.
Moving averages are the most popular and highly effective. They are often used as support and resistance levels, as well as to determine the prevailing trend in the market. The period of the moving averages is determined depending on the time interval used.
Also, to create profitable trades, you need to take into account the timing of important news reports. This is especially important in situations where you decide to use small time frames and several at the same time. To make it easier to follow the release of important news messages, specialized filter indicators were created that display all the necessary information in a specialized window on the trading chart. These algorithms are especially useful if you are trading on several working pairs and you do not have time to follow the news yourself.
Creating a trading system using filter indicators
Most of the experienced traders in the process of trading prefers to use not only indicators, but also tools for performing graphical analysis. How exactly this is done is best seen with a specific example.
Let's say a trader is going to create an order in the direction of the dominant trend immediately after the correction process is complete. In the role of the main signal source, you can use the Fibonacci levels, as well as the method of graphing. Indicators in this case will serve as auxiliary tools. To create effective rules for entering the market, a number of tasks should be solved:
- Determine if a trend is currently on the market and pinpoint its direction.
- Supply the Fibonacci levels with a filter indicator that can confirm the end of the correction, as well as the price level pullback.
In order to cope with the first task, you can apply such Forex filters as moving averages and ADX, and for the most accurate confirmation of the end of the correction, you can use Stochastic.
It is necessary to conduct trades according to the following scheme:
- Identify the presence of a trend in the market and determine its direction.
- The next step is to stretch the Fibonacci levels for a strong movement, which will be the last.
- Near important levels (61.8% and 38.2%), it is necessary to carefully monitor the movement of the price level, as well as the data of the Stochastic indicator.
In order to open a deal to sell a currency, you should wait for the moment when the price level after a jump up rushes down from an important level, ADX also moves down and the curves of the Stochastic algorithm intersect in the overbought area. In order to open an order to buy a currency, the market situation must be mirrored. For a more accurate entry into the market, it is best to monitor the situation on shorter time frames.
The Forex indicator 88 Filter is an extremely effective tool used to find points of price reversal and refill positions on corrections. This filter is made in the form of a histogram. With the greatest benefit, a trader can use the intersection of histogram bars with a certain level to find areas where a price reversal occurs.
The specified Forex 88 Filter indicator is equipped with sound and text notifications. Experts working with the described trading instrument advise making replacing the 25th level, set by default, with the 9th, and also follow the indicator signals on a number of M30-H4 timeframes... The moment of crossing the 9th level serves as a signal of a price reversal, and the crossing of the 6th level should be understood as intermediate price zigzags, which are used to refill on corrections.
Installation, setup and use of the Forex 88 Filter indicator is performed by standard means, like other indicators for the MetaTrader4 terminal.
Installation
In order to install the indicator in the MetaTrader 4 terminal, you need to copy the indicator files to the folder from the terminal to the corresponding subdirectories. Then launch the terminal and open the panel with indicators and drag the 88 Filter indicator or select the corresponding item in the main menu panel.
To configure, right-click in the indicator window area and select the menu item Options... In the window that opens, you can change all the necessary configurations.
Forex indicator 88 Filter allows you to significantly increase the accuracy of entry into positions, and as a result, the profitability of your trading system. Use the indicator to complement your trading strategy.
Indicator features
- It allows you to determine in advance with a high probability the price reversal point.
- Suitable for different instruments, different markets, all timeframes.
- It can be used in a variety of trading strategies as an additional filter to increase the profitability of positions.
- Free distribution.
- Compatible with MetaTrader4 terminal.
- Intuitive interface, simple installation and configuration, ease of perception of signals.
- High efficiency of the indicator and signals.
How to create a trading system?
It is impractical and risky to work with only one Forex 88 filter indicator, because one indicator with a high degree of probability will give many negative signals... Therefore, it is necessary to work out a trading system. For this, you can use ready-made developments. For example, learn the basics of price action trading and implement the Forex 88 Filter indicator into this system. Alternatively, you can generate a strategy yourself. This will require a huge amount of time to spend on charts and indicators, try out various variations, then check on the strategy tester, work for a while on a demo account or a minimum cent account, and only after that start operating your trading strategy.
Later, when the system has already passed all checks and you start trading with real funds, you should periodically check the health of all clusters as errors may occur. The market is constantly changing and what worked yesterday may not function today.
On our website you can download the Forex 88 Filter indicator for free and use it for personal use.
