If you are new to forex trading, you might have heard of forex trading signals and wondered what it is and if it’s a trading secret you knew nothing about. Are they as valuable as some traders make them out to be, or are they regarded taboo?
What are Forex Signals?
Forex signals indicate when the best time and price is to place either a buy or sell order. Recommendations will include the best currency pair to trade, as well as the profit you could potentially generate if you follow them. These are usually the best signals sent to traders as alerts, in the form of SMS alerts, email alerts, Tweets, RSS, pop-up messages, etc.
Forex trading signals get generated by automated FX software (FX robots) or via human specialists.
Some traders follow these signals’ recommendations, while expert traders choose to use these signals to analyze the market to determine their own trading strategies. Expert traders also use the best forex signals to develop their experience and profitability.
Several beginner traders use these trading signals to help them make a profit while still learning the ropes. They feel it can speed up their learning process while gaining insight into the various trading options available.
If you choose to use trading signals, it’s important to remember that timing is everything, especially in volatile markets like forex.
How Forex Signals Systems Function
Various forex signal systems share the same features, and it’s essential to know the differences between the most common ones.
Manual and Automated Forex Signals
These forex trading signals get determined by how they get created.
A manual forex signal gets generated by an experienced trader or analyst. The individual who generates a manual signal essentially makes the final decision, making human intelligence play a significant role. These experts identify prospective trade recommendations by using both technical and fundamental analysis.
Automated signals get generated by a computer or software, which, based upon coded algorithms, monitors and analyses price actions. Algorithms analyze technical indicators and historical data to determine how the market will move. This system can also get referred to as Expert Advisors (EA) or forex robots.
Automated signal trading can get seen as beneficial as human emotions get excluded while providing quick signals. It can also get seen as a disadvantage as it lacks the decision-making process.
Free and Paid Forex Signals
These forex trading signals get based on the price of a signal service operator.
Free forex signal providers don’t require payment for their signals, whereas paid forex signal providers require payment through monthly subscriptions or one-time payments.
Prices can range between $30 to $500, depending on the service you subscribe to. These subscriptions generally last for a certain period only while providing an average amount of pips per day.
Entry and Exit Forex Signals
These forex trading signals get based on a trade’s suggestion’s number of details.
Some signal providers will only provide entry signals, notifying traders when to enter the market. In contrast, other signal providers will supply exit signals only, advising traders when to close their open position.
Both entry and exit signals get taken into account when it comes to short-term trading signals.
We do not Endorse or Recommend Forex Trading Signal services! We Encourage Education!
What do Forex Trading Signals get Based on?
As previously mentioned, forex trading signals get generated through either fundamental or technical indicators or both.
Fundamental Analysis
Fundamental analyses entail the understanding of how the economy impacts currency pairs and the forex market. Trading signals can get generated from the following common fundamental indicators:
- Carry trade strategy – instead of price action, this strategy is dependant on the difference between the interest rates of two currencies in a forex pair.
- The market’s momentum drives market sentiment – movement in certain currencies.
- News – Politics and economic data from a currency pair’s countries can impact the currency’s value.
- Volatility – the ability to make pips quickly when there’s a sudden movement in the market.
Technical Analysis
Technical indicators determine the amount of risk you can take. The most common technical indicators that get used in recognizing forex trading signals include the following:
- Fibonacci indicator
- Candlestick patterns
- Divergence
- Wedges
- Elliot Wave pattern
How Professional and Non-Professional Traders Use Forex Signals
Professional traders tend to use the best signal services as an additional tool when they have a deep knowledge of how forex trading works and when they’re more confident with enough experience.
Non-professional traders are still learning how the forex market moves, and some of these novice traders use forex signals to give them ideas on how to trade and make a profit.
A Conflict of Interest
Unfortunately, some traders are getting scammed by providers offering free forex signals. Even though these trading signals are free, the broker/brokerage earns a commission every time you place a trade with them. This will create a conflict of interest, as the broker/brokerage profits from your trades while increasing your transaction costs. It gets highly recommended that you avoid free forex trading signals, as they are most likely scams.
Due diligence is required when searching for a forex broker, and there are a few things you can look out for:
- Regulation – You need to ensure that your broker is licensed and regulated by the Financial Sector Conduct Authority (FSCA) in South Africa. The FSCA monitors all the actions of forex brokers.
- Spreads – Several brokers charge a commission fee on your trades only, whereas others are commission-free, charging a higher dealing spread for compensation. Look for a broker who has competitive spreads.
- Customer service – Your broker must be reachable via live chat support, email, or phone, even though most trades get executed online. It would help if you can also reach your broker or someone in your broker’s office when you have any issues or problems.
Pros and Cons of Forex Trading Signals
Even though forex trading signals help traders make informed decisions in their trading strategies, they have their disadvantages.
Pros
- Trading signals simplify trading activities, as traders can’t watch the market 24/7.
- Trading signal alerts get sent immediately via app notifications, email, SMS, etc.
- There is less market risk if you get good fx signals, as traders get updated about market fluctuations in real-time. Acting quickly could generate profits for the trader.
- Traders get the opportunity to educate themselves and understand trading and the markets.
- Some signals are free.
Cons
- Beware of scams that act like authentic trading signals, as you don’t know who is the analyst or professional trader sending the signals. To avoid scams, stay away from free foreign exchange signals.
- It’s risky accepting a forex signal.
- Professional forex traders will rarely give their trading signals for free and will instead compensate with paid subscriptions. This can get costly over time.
- Automated trading signals aren’t always reliable as signals get generated by computer software and can give false information if there’s a system error.
- If you don’t act fast with a trading signal, you can miss out on potential profits.
The Bottom Line
Forex trading signals are not useful for long-term trading, and it’s advisable to educate yourself instead. Finding methods to become a better trader is beneficial to generate profits and is less risky.
Forex traders who focus on gaining knowledge develop skills and learn to recognize the best trading signals for themselves.
If you’re unsure how to trade forex, consider practising with a demo account. You will get to practice with virtual money in live market conditions. Practising and improving your knowledge will give you the confidence to make the right decisions while trading.
As the saying goes, “Give a man a fish and feed him for a day, teach a man to fish and feed him for a lifetime.” Forex signals can help you for a moment but won’t give you the tools to improve your trading strategy in the long run.
