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How to Understand Forex Trading Signals

Forex signals are popular with beginner traders to improve their success rate and enrich their trading experience. Trading signals are generated either by a human analyst or trader or an automated platform on a forex signal service.

What are Forex Signals?

Forex signals serve to determine the right forex trading opportunities at the right moment. By its very nature, a Forex signal refers to a trading idea centered around a particular currency pair, which should be implemented at a predefined price and time. 

 

Regardless of your trading expertise, using Forex signals can significantly improve your trading performance. Furthermore, expert traders can utilize Forex signals to expand their profitability scope and experience. 

 

As for novice traders, Forex signals offer advantages as they allow them to make a profit while still gaining knowledge about the world of trading with currencies. Using the signals, traders can also speed up the learning process because it helps them gain full insight about which trading options the signal is built on.

 

It’s very important to know that a trading signal is useful only when used at the right time, especially in a volatile market such as Forex. On the other hand, a signal can easily become useless if a trader gets it too late. 

 

To make sure traders receive trading signals at the right time, providers send the signals through multiple communication channels like SMS, e-mail, push notifications. Another option is to download platform add-ons that allow traders to receive their signals directly on their trading platform. Some traders use social-trading communities to receive relevant Forex signals.

 

Simply put, Forex trading signals represent essential need-to-know info related to the market. In a lot of ways, a Forex signal represents an immediate update that traders can incorporate into the trading decisions they execute. 

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Types of Forex Signals

Although a lot of signal services share some features, there is no universal signal service. In this article, we cover the four most common Forex signal services.

 

Manual vs Automated Forex Signals

This service is categorized based on the way the signals are generated. A manual Forex signal is created by an individual who’s usually an analyst or an experienced trader. This is because with manual signal trading, the trader has to make the final decision and the human intelligence factor plays a major role.

 

In contrast, automated trading signals are created by a computer or software that monitors and analyzes price action based upon coded algorithms. 

 

The main benefit that comes with the automatic signal trading route is that it excludes emotion and provides increased execution trading speed. However, it also has a disadvantage because you rely very much on a computer, system, or individual and it excludes the decision-making process.

 

Paid vs Free Forex Signals

This category is based upon the price of a signal service operator. Just as their name states, free Forex signal providers offer signals without requesting payment, while paid Forex signal providers offer signals but require money for that service. The latter category usually requests one-time payments or monthly subscriptions.
 

Entry vs Exit Forex Signals

This is a category based on the amount of detail of a trade suggestion. There are signal services that provide only entry signals, that tell a trader when to enter the market, and there are other providers that offer only exit signals that tell traders to close their open position. 


Most of the time this concerns long-term Forex trading signals on financial products that trend for extended periods of time. When it comes to short-term trading signals, a trade idea usually takes into account both entry and exit signals.

What is Copy Trading?

Copy trading is a type of trading that became incredibly popular over recent years because it lets new traders make a profit. As a matter of fact, there are more and more traders who develop the “people-based” portfolios where the idea is to invest in other investors who conduct the trades for you, instead of trading currencies yourself. 

 

There are a number of ways copy trading can be performed based on the platform you select. Whatever the platform, the main idea is the same - invest a part of your portfolio in a specific trader and copy all of their trades in a percentage-based way. 

 

Keep in mind that most platforms don’t allow investing over 20% of your portfolio in a single trader, in order to encourage portfolio diversification. This is actually an efficient policy as sometimes investors appear more skilful than they actually are or they go through a rough streak. That’s why it’s wise not to have too much of your portfolio invested in one trader. 

 

When it comes to monitoring graphs and statistics, copy trading is just like normal trading. However, the main difference is that in copy trading you’re monitoring actual people rather than market moves. That’s why it’s of utmost importance to check a trader’s portfolio before copying them. Learn about their strategy, track record as well as risk management strategies they use. 

 

One thing is for sure, copy trading is great for novice traders. It’s an easier way into the world of trading and it will let you make some money by generating trading opportunities from successful investors. Even if you start losing, you can’t lose everything thanks to the portfolio diversification policy. 

 

Remember that no type of trading guarantees success, but at least it’s a great way to gain trading experience. It’s a great way to learn about trading since you’re learning from more experienced and successful traders.

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Who Provides Forex Signals?

As we’ve already mentioned, there are manual and automated signal providers. Manual providers are usually more experienced traders, market analysts and strategists. Manual providers provide trading opportunities that are derived from their trading experience, fundamental and technical analysis expertise as well as their trading strategies. 

 

On the other side, automated signal providers refer to computer software that is developed to create trading instructions when specific set parameters or conditions appear in the market. Expert Advisors (EA) is an example of automated signal providers as it utilizes technical analysis techniques that are based on forecast indicators, such as Moving Averages, Fibonacci Levels, and Stochastics

 

Alternatively, there are also other automated signal providers that use fundamental analysis methods, including monitoring economic news releases and market sentiment. You may prefer automated signal providers to manual signal providers, or the other way around, depending on what you are looking for. 


You can also find platforms that collaborate with third-party signal providers for free on a daily and weekly basis through market review and analysis.

 

One of the largest auto-trading communities in the world that’s worth mentioning is MQL5. Anyone can become a signal provider in this community, however, there are a number of conditions to fulfill to make sure you can subscribe to a signal provider that will suit your requirements. MQL5 assesses the confirmed trading results of all providers and rates them. 

 

Additionally, you are able to use different filtering options that will let you choose your preferred signal providers based on their percentage development, drawdown and manual or algorithmic trading. 

 

Also, this community will warn you about any provider that still hasn’t delivered enough Forex signals or about new signal providers whose successful results could have happened by chance. Once you’re subscribed to an MQL5 signal provider, you will be able to copy trades of the trader you’ve selected.

 

 

How To Use Forex Signals

First things first, make sure you choose a good broker. Reliable brokers use trustworthy platforms that are very important for providing signals in a reliable manner.

 

Next, choose a proper provider. This is actually a more difficult task than it seems, even though there is a high number of choices for traders who want to use Forex signal providers. This is one of the most important steps because executing trades based on unreliable signals can result in massive losses. You’re putting a lot of faith in the provider, so make sure you choose wisely. 

 

That’s why you should conduct a detailed research about available signal providers and choose a provider with a high reputation and reliability. 

 

Before you settle and choose a provider, learn about their trading performances and strategies. There are signal providers that offer a free trial period which you can subscribe to at a later stage in case you’re pleased with the results. 

 

When it comes to automated strategies, you can usually conduct backtesting to see how the computer would have done in various market circumstances. Also, testing signal providers on a demo account before risking real capital would be a wise thing to do. 

 

It’s also important to know that there are trading platforms that offer high customization features which can really make the difference since not all signal providers will enrich your trading experience. A customizable platform will make sure you can adjust a reliable signal to your investment objectives and aspirations. 

 

Don’t forget trading with currency pairs can be short-term or long term. Short-term signals are used in day and intraday trading, while long-term signals are used for several days. Keep in mind that these signals are time-dependent so make sure you make use of a signal as soon as you get it. 

 

Key takeaways

  • Trading signals are generated either by a human analyst or trader or an automated platform supplied to a subscriber of the Forex signal service.

  • Forex signals offer advantages as they allow traders to make a profit while still gaining knowledge about the world of trading with currencies.

  • Copy trading allows for investing in other investors who conduct the trades for you, instead of trading currencies yourself. 

  • There are signal providers that offer a free trial period which you can subscribe to later if you’re pleased with the results. 

  • Always conduct backtesting to check how the computer would have done in various market circumstances.

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