An Introduction to Forex Signals and the Best Way to Use Them
Thousands of Forex traders use Forex signals, and you’re probably wondering whether they will be a useful tool for you. Here on this page we plan to introduce you to the idea of Forex trade signals and explain the best way to use them. Once you’ve read all the best information here, you’ll be in a great position to make an informed decision.
What are Forex trade signals and how do they work?
The best Forex signals help traders make critical decisions regarding their trades. They have become a very important tool for a large majority of traders, and most will have made use of them at least once or twice in their Forex trading journey. They come in a range of shapes and sizes, some of which are free, while some are offered in exchange for a fee.
Forex signals are basically a set of analyses that help a trader decide whether to buy or sell a currency pair at a particular time. Also known as Forex signal systems, they can be based on charting tools, news-based events, or on technical analysis. Successful Forex traders often make use of a number of different signals, all working together to help with trading decisions.
Forex signals are sent to traders and contain trading instructions. A Forex signals service works by sending notification to a trader about upcoming trading opportunities. It is then up to the trader to react and act or ignore the indicated trades. A trading signal service is usually offered in a couple of different ways. It could be one that follows the trades of other real traders and then copies their actions, or be a subscription service offered by various software platforms. The software analyses the markets and makes appropriate suggestions.
Different types of Forex trade signals
As we’ve already mentioned there are basically two types of Forex signals available for the day trader.
- Copying other people’s trades
This is the most popular type of Forex signal and is called copy-trading signals. The clue is in the name, as to how they work. It involves following the trades of other real traders, and copying the trades that they make. There are a number of different copy-trading signal providers, such as eToro. Traders are given the opportunity to enter the service to become signal providers, but there are usually a number of specific requirements, such as set trading volumes. Other traders can choose to use the platform and follow these signal providers. Copying another person’s trade can happen automatically, or the signal service will send a notification and then it’s up to the individual trader to execute the trade manually, should they want to. It is usual for this type of signals service to charge a subscription fee, or take commission from a trader’s profit. The signal providers who are being followed charge commission on the profits of the traders that are following them. This type of signal service has become very popular, because all the participants of the business only make money if the traders using the service make money.
- Generating signals using algorithms
This type of signals service doesn’t use real people to generate the signals. Instead, these are automated or algorithm-based signals, which scrutinize various charts and make predictions, and can be relatively accurate Forex signals. This type of Forex signal uses the same tactics and strategies a manual trader would use, but there is no human emotion involved, just a set of clear cut rules to follow. Fundamental and technical analysis, along with a variety of indicators are used to uncover any developing trends. Trends are predefined and often predictable movements of currency pairs, and once the software has uncovered them it sends a signal to the subscriber, and advises them to make the appropriate investment. Automated Forex signals can be quite accurate, but historically, not all have proved to offer the same level of accuracy. So much so that a large number of traders still prefer signals generated by a real live human being. But not all automated signals are cut from the same cloth, and there are some that do make relatively accurate predictions. Many traders, even some of the most advanced, choose to use signals generated by algorithms on a daily basis. However, they will tend to evaluate the signal themselves before acting on the prediction.
Is it a good idea to use a Forex signals service?
Using the services of a signals service is a very popular tool, used by thousands of traders, regardless of how much Forex experience they have. So it seems pretty obvious that the best Forex signals providers have something worthwhile to offer. Using signals will improve the chances of making a profit and get you on track to trading success. But what is it that different traders find so appealing?
- For the beginner – When first starting out on a Forex journey, it can all be very confusing and difficult, especially if going it alone. Which is why accurate Forex signals are a blessing, as they will help a novice trader to learn how a professional trader trades. With the opportunity to copy the trades of those with far more experience it is a great way to set off on the right foot.
- For those with little time – Not everyone has the time or energy to sit in front of a computer all day and analyze the markets looking for trades. For this type of Forex trader a signal service means there is a more professional trader keeping an eye on the markets for you. Which saves a lot of time and headaches. Also a professional Forex trader is far more likely to achieve better results.
- For the experienced trader – For veteran traders, using a signals service provides a real opportunity to hone their skills, as well as provide an additional source of profitable trades to expand and vary their own strategies. It can also be a very sociable affair, as it means joining a community of like-minded traders who use chat and live trading rooms to communicate. Which can only be a good thing as it is a way of helping each other get better results.