The forex market is so extensive and widespread it needs to be understood before stepping in. Forex signal providers can be an effective tool for that. Discover everything there is to know about forex signals.
Read on …
First things first, what are forex signals?
Forex signals include entry and exit points on a currency pair which are sent out by Forex signal providers to their client base.
This means that a human analyst or a piece of software is continuously monitoring and analysing the Forex market, looking for tradable setups. The moment the analyst or the robot sees that the time is ripe to enter the market, a signal is distributed to the followers of the respective service provider.
The basic idea is that an experienced trader or program does all the hard work for you. You just need to open the signal in your trading account and wait for the profits to pour in. Also, the whole process happens in real-time. So, you will receive either a message, an email, an RSS feed or a Twitter update. Anyhow, it is the job of the analyst or robot to send you the signal at the right time.
Why set them up though?
The main motive of providing these signals to the users is to build a loyal customer base of signal followers. The service providers, in turn, employ analyst experts, use software or can also use a robot program to extrapolate the correct signals.
Some signal providers do charge a fixed fee, while others choose to send these signals free of cost. You may ask what benefit do they get for sending these signals for free?
Well, for one they are building a customer base.
And once people start to use their signals and earn a profit, they’re one step closer to gaining a subscriber to the signal service for a fixed monthly fee.
Types of forex signal
While some providers focus on longer-term setups, others may be scalping the market. Some may use fundamental analysis and trade the news, while others are focusing solely on technical analysis. Some providers analyse the market themselves, while others use complex algorithms and trading software to find the perfect trading opportunity.
In general, there are two types of Forex Signals:
- Manual Signals: Manual signals are distributed by Forex signal providers who employ human traders to analyse the market. There are certain advantages of manual signals over automated ones, as an experienced trader can fine-tune their strategy to accommodate the current market environment.
- Automated Signals: With this type of Forex signal, a program will do the job of an analyst. Trading software and robots are programs that use a set of technical rules to find trading opportunities in the market. Programs don’t have emotions and can work around the clock, but they still lack the ability to adjust their trading rules to changes in the market environment.
What’s their legal status?
Just like in any type of business, there are legal and illegal Forex signal providers and scammers. It’s important to understand that, in order to provide investment advice, an individual needs to hold the certification of a financial advisor. This is the reason why many Forex signal providers emphasise that their “views are not investment advice and should be used only for educational purposes.”
There are also companies that employ professional market experts to analyse the market and prepare the signals, but they will usually charge you a higher fee.
Finally, scammers are only interested in growing their client base without providing valuable trading signals in return. Their signals may work for a period of time, but once the market environment changes you can forget about the profits. Scammers know that once a disappointed client ends his subscription, a new beginner will come around and subscribe to their service.
Is it Beneficial to Use Forex Trading Signals?
So far, we’ve learned the “What” and the legality of Forex signals.
Now, let’s talk about the reasons why people use signal providers to trade the market. Profits are an important incentive, but there are other reasons too.
- Time-Saving: Forex trading requires discipline and constant education to be mastered. Why not leverage other traders’ knowledge, pay a fixed monthly fee and stop worrying about analysing the market yourself? Forex signal providers save a lot of time, given their analysis is correct and profitable.
- Risk Diversification: If you’re already trading other markets, such as equities or commodities, Forex signal providers can provide you a welcoming risk diversification. Currencies often exhibit a significant correlation with other markets.
- Education: If you’re new to trading, Forex signals can also be used to learn something new about the market. Look at the charts of your signal provider and try to understand why they are opening a long or short position on a particular currency pair. If your signal provider also distributes market commentary, you have all the necessary material to boost your knowledge and eventually become an independent trader.
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Sources of Forex Signals
Most Forex signal providers use human traders to prepare the signals.
There are also software and robots which do the same task, but the strategy and the markets used by trading programs are still entered by a human trader. If a trader fills in different values forcing the software or the robot to look in the other direction, the results will also be different.
Still, computers don’t have emotions and won’t take a trade because of greed or fear of missing out – both common mistakes among beginner traders. The lack of emotions gives trading software an upper hand when compared to human traders, given their algorithms are regularly adjusted to fit the current market environment. A trend-following robot won’t do well in a ranging market, and vice-versa.
Also, you have to be cautious of the scammers who are looking to dupe you into investing your money. It’s quite difficult to differentiate between a reliable and scam Forex signal provider because you are getting a message on your phone or an email which suggests you invest in a certain currency and don’t know whether the trade will work out well. You need to be extra cautious if you are a beginner in order to protect your trading capital.
Why learning to trade by yourself can be more beneficial than trading signals:
Free Forex Signals – Are They Worth It?
You must have encountered the term “free forex signals” somewhere on the internet. The word FREE is what encourages beginners to invest their money and start trading. However, do you know how providers of free Forex signals pay their bills?
Although there’s no monthly subscription fee for their customers, there’s a large number of signal providers who don’t charge a dime for their service.
So, how do they work?
In the majority of cases, providers of free Forex signals ask their potential clients to open a brokerage account with a specific brokerage house. That broker usually has a partnership with the signal provider, and the provider gets a commission with each new client who deposits a certain sum of money with that broker.
This is simply another way of monetising a signal subscription service. There’s no reason to believe that free signals have to be inferior to paid ones in any sense. Do your analysis, check the signal provider’s track record and check whether his trading fits your trading style.
Receiving Forex Signals:
Once you’ve chosen a signal provider that suits your needs in terms of trading style, it’s time to check how the provider distributes his signals. There are many channels used by signal providers to communicate with their clients and we’ve listed the most popular ones below.
- Telegram: While this may not be a very famous and widespread messaging application, Telegram is extensively used by signal service providers to distribute signals to their subscribers.
- Email: A major benefit of using email to send Forex trading signals is its descriptive nature. Through email, the service provider can send a detailed description of the signals. Paid providers often combine various channels of communication to make sure their clients receive any new signals right on time.
- Text SMS: Another way of receiving Forex signals is by SMS. You don’t need an internet connection and SMS messages can be received at any location around the world. The main drawback of this channel is that you can only receive the main points of a signal – most commonly the traded currency pair, stop-loss, and take-profit levels.
- WhatsApp/Viber: These platforms are quite popular among Forex signal providers. You can receive a detailed market commentary, signals, and charts through them, and most of us are already using either WhatsApp or Viber (or both?), so there’s no need to install new programs on your smartphone or computer.
Forex signals can expand your knowledge
Believe it or not, Forex signals are a great way to deepen your knowledge about Forex trading and to sharpen your trading skills. Many traders who subscribe to Forex signals don’t want to follow someone else’s advice forever – They want to trade on their own once the time comes.
If a signal provider has a profitable track record, you can use his signals and accompanying market commentary to learn.
- What analysis did the provider use to decide to go long or short on a currency pair?
- Are they trading on shorter-term or longer-term timeframes?
- How did they set their entry and exit points?
All these important points can be learned by observing the signals you’re receiving.
To make the most out of Forex signals, make sure that your signal provider actually explains their signals by using charts and a technical description of the trade.
Also, don’t take all signals and analyses for granted. Always have a dose of scepticism.
What to Look for in a Signal Provider
It cannot be stressed enough how important it is to choose the right signal provider. Your trading performance and bottom line will be directly impacted by the signals sent out by the signal provider. Hence, given below are a few tips and strategies. Follow these to know whether or not you are choosing the right service provider.
- Track Record: To assess the profitability of a service provider, observe their track record. This means that you need to research a bit about the service. Go to their website and check the success rate of their signals. These records are typically enlisted on a monthly basis. After that, you also need to ensure that they have a verified track record. Do not believe everything they say on the website. There is a platform which goes by myfxbook.com, which connects directly with a trader’s (or provider’s) trading account and verifies its results. A serious signal provider will always show their trading results by using a transparent and verified third-party.
- Trial Period: Going one step further, opt for a trial period. This matters because a good Forex trading signal provider will have nothing to hide. They would love to give you a taste of what it looks like to work with profitable signals. You can check whether the signals are profitable and whether they suit your trading style. You can observe the type of signals they send, the information that comes with these signals, such as market commentary and charts, and much more. This gives you a taste of the service you can expect once you subscribe for a monthly subscription.
- Customer Support: This is also important. The best service provider will always have a system to help their subscribers in any way possible. You can check whether they have tutorials to help you learn the basics. This way you won’t have to spend money on learning them separately.
Plus, look for what other services they have, like webinars, the number of currency pairs they analyse, or daily or weekly alerts about the market performance. All of this shows that the service provider wants to share as much information as they can with their clients and that they’re actually monitoring the market full-time.
- Charts and Market Commentary: Charts that are well analysed enrich a signal service significantly. You can check the analysis behind the signal and have more trust in the trade once you place it. Similar to charts, market commentary can also be used to describe a trade and the underlying fundamentals that may cause a currency to appreciate or depreciate.
- Trading Style: Make sure that the signals sent out by a signal provider match your trading style. A scalper may want to look for a signal provider who sends scalping signals, while position traders may feel better off with longer-term signals.
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An easy way to assess the trading style of a signal provider is by checking the number of trades usually sent out during a day. A large number of trades shows that the provider uses a relatively short-term timeframe to analyse the market. On the other hand, if there are only a few signals during a week, the provider is likely using a longer-term approach and may be combining fundamentals in their analysis.
- Time Zone: Before signing up for a Forex signal service, make sure that you can actually follow the signals sent out by the provider. Most signals have a relatively short time span, which means that the trades need to be opened as soon as possible. If your provider is based on another continent and distributes his signals while you’re asleep, you’ll likely already miss the majority of profits at the time you open the trade.
- Managing Trades: A good signal provider should be able to manage their trades while they’re open. Market conditions are constantly changing, and a setup that looked like a good one yesterday may become useless today. Managing trades includes following them as long as they’re open. If market conditions change, such as with the release of some breaking news, your signal provider shouldn’t hesitate to adjust the signal’s exit points or close the trade altogether.
- Trading Support: Last but not least, signal providers who provide ongoing customer and trading support tend to be a better choice for beginner traders than other providers.
Although the profitability of the trades is the most important feature of any signal provider, you also need to be able to contact the provider with any questions you might have along the way. Many providers offer customer support via e-mail, WhatsApp or Telegram and won’t mind answering your questions.
Most signal providers provide the complete list of offered services on their website, so make sure to check them out before subscribing.
Remember, forex signal providers vary in quality
The Forex market attracts a large number of traders on a daily basis. Unfortunately, many of those newbies will learn to trade the hard way – by blowing their account. While trading on your own should be your ultimate goal, it takes time, experience and patience until you master the art of trading.
Forex signal providers are traders who monitor the market full-time and send trading opportunities in the form of signals to their client base. The quality of a signal provider depends on the profitability of the signals, so make sure to check for a verified track-record on the provider’s website before signing up for a monthly subscription.
Forex signal providers can also shorten your learning curve significantly, but only if you choose the right one. Follow the points provided in this article and try to find a signal provider who uses charts and market commentary to explain the signals.
Remember, trading in this market without basic knowledge is akin to rowing in uncharted waters. Hence, take care of your trading capital and whom you are trusting. Don’t lose your hard-earned money by blindly following an analyst sitting thousands of miles away.
- Learn more, take our Trading for Beginners course