Automated trading signals are a great way to buy and sell automatically on someone else’s advice.
What differentiates them from normal trading signals is that they actually execute the trade for you.
Automated signals trading is also different from standard automated trading because the provider notifies you when the trade is complete.
Further to that, automated trading signals are used by beginners and experienced traders alike and they are a great way to learn about analysis.
But can all of them be trusted? How do I get them? What should I look for in a provider?
We’ll answer all these questions and more in this article!
What are automated trading signals?
Automated trading signals are when a service provider buys or sells an instrument on your behalf through your trading account.
They can also notify you about other factors such as high or low volume or volatility.
Most often you pay for this service and they send you the notification to inform you of the trade.
Before we dive deep into what automated trading signals do, let's look at the key things that define trading signals.
By understanding trading signals, we can make sure we don’t confuse them with automated trading signals.
Fundamental or technical?
Most signals services provide either fundamental or technical trading signals or a combination.
Fundamental signals notify you when an event has taken place that might affect the market. For example, the Bank of England announces an increase or decrease in interest rates.
Here are some other examples of fundamental news:
- Natural disasters. Hurricanes, earthquakes, famine, etc. For obvious reasons, these cannot be predicted.
- Political. War, political announcements, policy change.
- Economic. Interest and inflation rate changes. Economic targets reached, exceeded or missed.
Fundamental signals cannot be solely trusted. You cannot necessarily measure how they will affect the market. They could have a big effect, a small effect or no effect at all.
Part of it depends on whether the news is expected or not.
For example, if traders already know that the Bank of England will increase interest rates and have already roughly guessed the number when it is formally announced, the change will probably not make much of a difference in the price of the British pound.
It is highly advised to use a forex economic calendar alongside such signals.
Technical signals are more complex. They look at price movements over a long period of time and identify key price patterns.
Often, when they are received, they will state to buy or sell when a certain price is reached. On top of that, they can also help you with risk management as well.
Technical signals can tell you when a certain indicator reaches a certain point. For example, the slow moving average has overtaken the current price which can be a sign to sell.
You should do your own analysis to back up what they are claiming.
Ideally, you should look for a provider of both types of signals. That said, it’s also down to if you’re a fundamental trader or a technical trader. This needs to be identified first!
In short, trading signals can help you make a whole strategy.
But you need to assess how that strategy will perform in certain market conditions and if it is worth doing. If the trade is very small, is it worth the risk?
What do I need to use automated trading signals
We’ve got that out of the way, so let’s get down to what we need for automated trading signals.
Get a broker
First of all, you need a broker. Without one, you will not be able to act on any of the signals you receive!
Once you sign up you can open an account. In most cases, signals will only be available to paid traders.
Some brokers give away trading signals for free, some for a fee. Don’t pick a broker solely because they give away free signals or automated trading!
Picking a broker should be a well-thought-out process!
In most cases, you need a trading platform such as MT4 or MT5. There are plenty of other platforms out there, but these two are by far the most widely used by signals providers.
By using a platform that many other traders use, more signals providers will be available to you. You will also be able to find out more about the platform online as well.
Your signals provider doesn’t necessarily have to be your broker though, they just need to work on the platform you’re using.
That said, it is best to sign up to a provider that uses the same broker as you as it makes synchronization better. Some automated trading signals providers will tell you this upfront.
Also, make sure your broker is fast. Don't expect that there will be no delays in buying or selling; you may lose or gain a few pips here or there.
And, finally, the account type you use will also matter (micro, mini, standard, professional) as well as market access (ECN/STP, market maker, etc.).
You need to know what you're doing!
Perhaps the most important thing you need in order to start using trading signals is a trading education. You cannot rely on trading signals alone, you need to be able to make judgements.
Are you a swing trader or a day trader? This is important because it will impact the decision of which provider to use.
Finally, the last thing you need in order to take full advantage of automated trading signals is quick and decisive reactions.
If you are not fast, the opportunity can pass you by. One minute can be a long time and you can miss that entry point.
Pros and cons of automated trading signals
As with everything in trading, nothing is completely smooth sailing. There are both pros and cons to take into consideration. Let’s look at a few.
Pros
- Great way to learn about analysis. See the trades they make, their analysis that let up to that decision and the outcome.
- Earn while you learn. Make some money on the side while you learn how to trade.
- Trade only when you need to. Perfect for swing traders who can’t or don’t watch the market all the time.
- Can build your confidence. You are making trades based on solid information.
- Remove emotions from your trades. Your emotions won’t get in the way. Instead, your trades will be solely based upon mathematical formulas.
Cons
- Traders can get lazy and rely only on their signals. They stop looking for opportunities themselves and stop learning how to trade. This can be dangerous.
- Signals cannot always be trusted. Both fundamental and technical signals can be wrong sometimes.
- They might not work with your trading strategy. In most cases, you will have to adapt to how they like to trade, not the other way around.
- Can get expensive. Make sure you understand the fees involved with your signals provider before signing up! They may charge you monthly, for every signal, for every trade or a combination. Plus, don’t forget to factor them into your earnings!
- Virus and malfunctions can lose you money. The system may get analysis wrong and make bad trades.
How are automated trading signals made?
Trading signals are made by analysis often made by financial experts who watch the market around the clock or by computers or a combination of the two.
Ideally, your signals provider should use a mixture of computers and financial experts. This way the expert can monitor the computer and the computer can cancel out human error.
You can receive signals in a variety of ways; SMS, phone call, email, app notification, etc. Some services need you to install their programme on your trading platform.
In most cases, with automated signals services, the only automated part is the signals they send. The actual trading is done manually by a real trader on your behalf.
This prevents the software from making mistakes. The notification you receive tells you about the trade that they executed and it should be detailed.
Some services require confirmation that you want to take the action. One click on a link in an email and done, the trade is made, for example.
Don't feel pressured though, analyse the situation first!
Can automated trading signals be trusted?
Yes and no!
Automated trading signals will never be right all the time. You will lose money at points. You need to use your own judgement to make trades.
Don’t be disappointed if your signals service loses you money the first time you use them as this is all a part of trading.
Learn what you did wrong and make sure you don’t repeat the same mistake.
Part of learning to be a good trader is accepting responsibility for your mistakes! If you never accept responsibility, you’ll never learn how to trade like a professional.
Most providers are poor but this is also down to the trader as well. Retail traders often fail to respond appropriately.
A key thing to look for is if the signals service has been backtested. You can look for proven results as evidence of this.
How to spot scammers
There are some genuine signals out there where they are good at analysis, but not at the actual trading and it can be hard to differentiate between these and scammers.
They might not have the right mindset for it or just not have the right amount of funds to start trading.
By gaining an income from their signals, they can increase their trades and trade more.
Despite this, be suspicious of people that claim success rates of 90% or above. First off how can they know this? Can they prove it?
Pips profit can also be misleading.
They may make claims like this month we made 500 pips, but neglect to tell you that they also lost 2,000.
Further to that, it doesn't indicate the profit that you will make. It means the combined total pips they claim to have made, including all other accounts connected to their master account.
Similarly, they may also talk about how many people joined their service and not tell you how many left.
How to research potential scammers?
Start off your research by looking into online reviews.
If most of them are bad, this is not a good sign. Though you need to take into consideration that some of the people leaving bad reviews may have gotten good signals, but their execution was poor.
It’s very easy to shift blame onto your failures on someone else as we mentioned earlier.
If there are no reviews at all this can be suspicious. Also, look for reviews that look fake or have been paid for.
No incentive is a good sign. You have to remember what it is that they are giving you. If they’re so good why would it be so cheap? High rates can be an indication of high quality.
Test their customer service. Get in contact with them and see how they respond to you. Still feel suspicious?
Finally, be careful of automated trading signals services that guarantee no risk. This is simply impossible, even the best traders will never say there is no risk.
To make gains there must be risks and the best traders will lose sometimes. In the end, good trading practices are not about winning all the time, it’s about being as consistent as possible.
The same rules apply with many other areas of trading-related services.
Malfunctions
There are plenty of horror stories of automated trading going seriously wrong, which is why such programmes should always be monitored.
Automated trading systems can sometimes not be aware of market volatility and while you are doing something else, they can make deadly trades that can wipe out your account.
And to make things worse, they are also susceptible to viruses as well. To prevent malfunctions, automated trading systems need to be updated regularly.
Automated trading signals can overcome these problems as you will be aware of poorly executed trades when you are notified of the trade that was made, which means you can act to prevent similar things happening again.
Fundamental events cannot be factored into trades as they only work with data. This is why it is necessary to have someone monitor the programme.
What should I look for?
Finding the right automated trading service can be tough and you may go through a few different ones before settling down.
Don’t sign up to many at the same time, this will make things confusing.
A good signals service should give you insight into how that analysis was made. You should be able to make the same kind of analysis and get similar results.
If a provider is not transparent on their process, that should be a red flag. Either they are legitimate but poor at analysis or a downright scammer.
Further to the above, transparency also allows you to learn and develop your analysis skills, which will help you learn to make your own trades.
Most signals providers don’t take into consideration traders trading plans; how they want to progress; what kind of profits they want to make in a certain time; their risk-reward ratio.
Often they look for opportunities for small, quick profits. If you’re a swing trader, this might not be of use to you.
You may have a risk-reward ratio of 1:5 while the signals you receive are 1:2. For such traders, signals are just frustrating.
Nevertheless, before you sign up to an automated service, work out how much you can risk.
Look for the option to pick a trading strategy and different package options.
Some of the best automated trading signals providers reassess what your account is able to manage as it becomes larger or smaller, adjusting the lot size.
This is important because it is often advised that you do not risk more than 1-2% of your account per trade, this will mean your account will last longer and more likely be profitable.
You don’t want them to risk making big trades with your money!
Some automated trading signals companies will give you the choice of lot size per trade from the very beginning.
Transparency is key. They may tell you where they have tested their software and be honest that they cannot guarantee results.
They should also warn you of potential losses and the probability of things not working out. A genuine service should also showcase their testimonials as well.
Another thing to look for is if they have a paid option and a free option. Check out the free option first before committing. Most likely they will try to push you for the paid option anyway.
You also don’t want commissions or at least you want them as low as possible.
Alternatives to automated trading signals
If you’re not sure automated trading systems and signals are for you, there are plenty of other opportunities for you that can inform you when to buy or sell.
Copy and mirror trading
In recent times copy and mirror trading have become a big development.
On some platforms, it is possible for traders to become signal providers and other traders to subscribe to them.
There are many things to be careful of.
Firstly, how well do you trust this trader? Some of the information on their platform can be misleading.
Don’t look at their biggest wins or the amount they have gained. Instead, draw your attention to how consistent they are. Ideally, you want to follow a trader who is consistent.
Remember that if you do decide to use such platforms, don’t just copy trades blindly. Use your own judgement first. If you are unsure about a trade, see if you can ask them about it.
Also, copy and mirror trading platforms will not give you the reasons why a trader bought or sold an instrument. This is vital if you want to learn from them.
Managed accounts
If you’re really not interested in learning how to trade and simply want someone else to trade for you, you can try a managed account.
In reality, though, you are actually an investor, not a trader. You are simply allowing someone else to trade for you for a fee.
You have to ask yourself how much you can trust them. And again, you will not learn anything about trading which will make it easier for them to lie to you!
Building your own trading signals?
If your technically minded enough, it is very possible! There are tonnes of services and resources online that can help you do this.
To manage such a fleet, you would probably have to learn a specific coding language such as MetaQuotes Language 5 (MQL5).
A few final tips before starting!
If you already have positions open, it is best to wait and close those positions favourably before allowing an automated trading signals provider to take control.
This is because the automated signals service may neglect that position, leaving it to make a huge loss or close it before it becomes profitable.
Be careful handing over login details! Really be sure you want to do this before handing them over for some else to automate your trades!
Do not hand over payment information to them, they should use a third-party, such as visa.
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Key points
If you remember anything from this article, make it these key points.
- Automated trading signals trade for you. They are not the same as trading signals because they fulfil the trade for you.
- There are many scams out there. Make sure you do your research first.
- There are alternatives. You can always try managed accounts if you want someone to trade for you.
- Take responsibility for your losses. If you make a loss from a trade that was advised by your signals provider, you must accept it as your fault and learn from it.
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