Forex Trading Strategy- How to Resolve Conflicting Signals

Traders become indecisive when his methods get in conflict and they cannot make a decision. This problem can be solved very easily. There can be a situation when the methods are clear but a trader can't take an action according to them. This situation is much more difficult to deal with since it's a psychological one.

Intellect + emotions = problems.

It can be said that problem of indecisiveness comes from intellect whereas problem of paralysis comes from emotions. By intellectual problems I mean when a trader doesn't have enough information for making a decision.

Let's consider a real life example. For sake of example let's say we are using a trading strategy that utilizes a combination of moving averages and Bollinger bands. We use bouncing of moving average off the Bollinger band as a signal.

We can encounter a situation when moving average approaches the Bollinger band but instead of bouncing it moves along with the band. Now we have a conflict of methods. The direction of moving average shows us buy signal but having at the upper Bollinger band gives us the sell signal.

This is a situation when trader can get uncertain about the trade. It is quite easy to solve this kind of problem. This situation needs one more additional method or rule to give us the final answer. The rule can be something like: if moving average doesn't change its direction when approaching the Bollinger band - it's a signal to open a position along the moving average direction. Once we applied one more rule the decision making process becomes easy. Studying the trading method that is being used can solve this type of indecisiveness. We can draw the following conclusions from the above example:

1. The less number of methods a trader uses the less chance of getting conflicting signals.

2. The less number of indicators he uses the less number of additional rules he has to employ to resolve the conflicting signal.

And one general conclusion: The best trading strategy is a simple one. Don't forget that any conflicting signals carry some emotional charge that influences a trader's psychology in a negative way. So it can be harmful for his trading even if he solves the problem successfully.

It's a traders dream to have a strategy that would make decisions for him. In other words a strategy that would give only clear signals in any circumstances. A simple trading strategy actually can accomplish that.