Complete Guide To Forex Signals

Last Updated December 7th 2022
5 Min Read

Beginner forex traders and those who need more time to analyze the market can benefit from forex signals to improve their trading performance and confidence. Whether you are a beginner or an advanced trader, a forex signal system may be the key to unlocking your trading potential. Whether you use the popular MetaTrader platform or your broker’s proprietary platform, you can set up a signals system that serves its purpose effectively, giving you enough time to focus on other things while running trades. This article explains forex signals, from generation to deployment, and what you should know before using signals.

What Are Forex Trading Signals?

A forex trading signal is a trigger, notification, or instruction to enter a buy (long) or sell (short) position for a currency pair. Trading signals provide triggers devoid of emotional impacts so traders can trade based on market data only. Traders typically use technical analysis (indicators) to generate signals, but they also use fundamental analysis, trading sentiments, or impact analysis.

There are companies, firms, or individuals that offer forex signals as a service, charging subscriptions for providing highly-probable trading signals to members. The process of generating signals is essentially the same for both private and commercial technical analysts. Large institutional traders such as banks and investment companies also invest in trading signals by hiring professional and capable financial and technical analysts.

How do analysts generate forex signals?

Generating Forex Signals

There are two main methods of generating signals, although they use the same tools. The method traders use on their preference sometimes impacts their results.

Human-generated signals

All traders make these regular trading decisions after analyzing the market. You have generated a trading signal if you enter a sell or buy position after analyzing the USD/CAD pair. You can share your signal and technical analysis with colleagues, friends, or trading social communities. Based on market data, human-generated signals use technical indicators to determine the best entries, exits, levels, and other key trading decisions.

Algorithm-generated signals

Traders can modify technical indicators and computer algorithms to send price alerts and entry instructions (buy or sell) when the price reaches certain levels, which the indicators analyze. For example, an indicator that creates sell alerts and trading signals when the price reaches resistance will do that. Algorithm-generated signals take the burden of analysis off traders while alerting them of important price levels, so they don’t miss their entries.

Whether you generate signals by yourself or use computer algorithms, you set the rules and conditions for trading. For example, you can choose to buy or sell when the asset:

  1. Reaches support or resistance
  2. Shows a breakout chart pattern
  3. Volume increases in a direction
  4. Fundamental news impacts the market
  5. Begins an upward or downward trend

You set the conditions if you are creating your forex signals. But if not, you can still get forex signals from third parties.

Third-Party Forex Signals

Getting signals from third parties is usually what traders refer to when they mention forex signals. So, for example, you can get live, instant, actionable forex signals from a trading community, signal service, or copy trading service.

Third-party signals are usually delivered via text, email, or instant messaging services such as Facebook live messenger, WhatsApp, and Telegram. Some signal services integrate auto-trading features by connecting social apps to brokers so that robots automatically enter trades as the signals are received. Most signal services are strictly paid irrespective of trading outcomes.

What To Know Before Using A Signal Service

Traders that use forex signals have two major reasons; comfort and saving time. You should know these before subscribing to any forex signal service:

  1. All signals are never 100% assured. Technical indicators and human analysis generate signals. There’s always a higher chance of success. So you should be willing to work with a percentage probability of success.
  2. Speed is crucial. Your internet speed and personal speed in executing trades are essential to getting the best from signal services. Most signals require instant execution, and once they are delivered to you, you may have from a few seconds to a couple of minutes to enter the trade. Sometimes, you may have trading setups sent ahead so that you can identify key areas where the price reaches and set price alerts. In addition, you can set up trading robots to automatically enter trades as they are delivered.
  3. It is important to find a competent signal service. Most individuals or firms who offer forex signals as a service are focused on making profits. These profits may come from something other than trading but from having traders who subscribe to their service. Therefore, you should do your due diligence in evaluating their signal history. Go for signal services with over 80% success rate and a low failure rate. You should also confirm the broker that their services work best with, as quotes may differ across brokers.
  4. Test the signals on a demo account. Treat the signal service like your personal strategy and ensure to test a few signals with a demo account. This will help you grasp speed and accuracy without undue exposure to your portfolio.
  5. Stop Loss and Take Profit are crucial. Use the SL and TP features when trading signals, especially when you have yet to analyze the market. SL and TP help you manage your trades even when away.

Final Thoughts

Forex signals are generated by technical indicators and human analysis and help traders make important decisions without emotions. You can subscribe to a signal service or join a community with free deliveries. Prioritize managing your trading portfolio using SL and TP.

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