Forex signals are notifications of the moments when one should enter or exit the markets. How to generate them?
Note that the accurate decision to enter or exit has a value of its own. It can be completely independent on the used trading strategy.
Even if the strategy is a long-term, and is targeting a profit of hundreds of pips, it is always beneficial to make additional pips with successful market timing.
And of course, timing is absolutely essential for intraday trading, when the daily trading ranges over 100 pips are rare.
We have developed an algorithm that makes it possible to detect market pivot points in real-time.
Forex Signals At Price Extremes
The idea is based on the observation that it usually takes time for important peaks or pivot points to form. In other words, even if the price has already reached its extreme, it most often oscillates around that value for some time.
So it might take quite a while before the prices start eventually moving faster and farther in the opposite direction. Then, at some point, this process will repeat itself.
Of course, if the market is trending, the extremes against the direction of the trend will be formed faster. But the idea is still valid.
Our algorithm uses this knowledge and runs the price curve through several filters with decreasing time constant.
The filter with the biggest time constant (slowest) will detect the peak price value with some delay. At this moment, we check if the current price value still doesn’t exceed the signalled extreme value. If not, we start looking at the output of the faster filter that signals for the next extreme in the opposite direction. This is the moment to enter the market.
On the below screenshot, you can see how well the tool works. Detected pivot points are marked with short horizontal lines.
Note that these pivot points are detected in real time. Meaning that each point marked on the screenshot was detected only based on the price information that was available to the left of it. This makes the algorithm very valuable.
An Example From The Dow-Jones
Recently we found an interesting illustration to our method from the stock market.
On the below picture (Dow-Jones), apparently a lot of trading signals were generated at the point shown by arrows. Note the daily trading volume (10B) exceeded its average value (below 0.1B) more than 100 times!
If you look closer, you can see that this point matches pretty well the algorithm we discussed.
If We Need To Use “Plan B”
We need to understand, that, of course, there is no silver bullet. There is no way to tell beforehand, for how long the detected pivot point will stay a pivot point. However, what we do know is that the price line will have peaks and bottoms following in succession.
Suppose that we misjudged the “ultimate” pivot point. And the point where we entered the market turned out to be only the local extreme. So after our entry, markets will make a peak in the opposite direction and turn back.
Still, entering markets close to the extreme gives us clear advantage in this case, as well. We will have more time to react to the direction change. And also more pips to spare to minimize our losses.