In this article we are going to look at a vital part of forex trading: forex signals. Forex signals are an important part of any strategy or system. They’re the part of the system that spells out excactly what, where and when to trade. To use a sports analogy: If the forex strategy is the gameplan, then the forex signals are the individual plays.
Forex trading signals show in detail how to carry out the system. Where a strategy is a collection of macro strategies, such as either a daytrading, scalping or position trading, signals work on the micro level. They can best be thought of as sets of logical operaters. IF some event happens THEN trade this currency. That is why forex robots and forex expert advisors have even been able to trade. But signals are not just used by robots, but by human traders as well. Today, there is a lot of software that can keep a trader fed with signals. Many companies also offer this service and send signals daily trough email or even sms. If you want to subscribe to one of them, you should use some time researching their track records as most of them will probably use agressive marketing to try to convince you to sing up.
What is the best use for forex trading signals? Some websites will have you believe that forex signals are all that you need to succeed. Other cynical traders will tell you that these signals are worthless. I believe that forex signals are just one of several tools available to the resourcefull trader. You should combine forex signals with good charting software that uses and shows indicators, but not least you should have a sound knowledge of forex trading, so that you can make your own judgement of the suggested trades. I’ve seen a few systems and signals services stressing this part and those are the companies that I would feel most secure with and not the hyped aggressively marketed ones.
Let’s look at one example of what a signal may look like and how you use this information. Let’s assume you have signed up for a provider and they send you the first email. Your signal will consists of different info: It will tell you what currency to trade, for example USD/EUR, then it will tell you when to trade it, within 10 minutes or today at 11.40 am. Then it will tell you how to put your stop loss limits and when to take home profits.
But what do you do if the market decides to not agree with your signal prediction? When you choose a signal provider, be sure to understand what budget, or bankroll if you will, that the signal provider has in mind. Some strategies require larger bank rolls than others, so a stop loss limit recommended by a signal may be to large for you.
As you can tell, forex trading signals offer both positives and negatives. They are not meant to stand alone, but rather to be used in combination with other tools.