Trade filters / filtering trades

    Traders can use trade filters to specify what they consider to be the most favourable market conditions for entry. When the criteria for the best market conditions are met, the trader is alerted and can look for the best opportunity to open a position. This effectively filters out any bad trades and only the best trades get executed.

    Why filter trades?

    With any trading strategy, knowing when not to enter the market is just as important as knowing when to do so. Some traders may be overly aggressive or conservative, and this can have a detrimental effect on their trading success.

    Setting filters and aiming to define the best market conditions for your strategy can lead to a more consistent approach and more profitable trading scenarios.

    Types of trade filter

    Trade filters can include a range of criteria such as time of day, price chart areas and risk to reward ratio.

    For example, you may choose to avoid entering the market during certain times of day, only enter when there is a strong uptrend or downtrend, and avoid trades that don’t offer a satisfactory risk to reward ratio.

    You can set personal filters so that you do not trade when you are stressed or anxious, and not in the right emotional frame of mind.

    Take care not to over-filter

    Over-filtering, i.e. setting up so many filters that the likelihood of conditions matching the specified criteria is extremely low, can constrain a trader so much that they have hardly any trading opportunities left at all. It therefore a good idea to make sure that the filters that you put in place when designing a trading strategy are backtested.

    To learn more, you can learn about technical analysis and trading psychology: