There’s no crystal ball to tell you exactly what the fast-paced, unpredictable forex market will do. Every trader– no matter how skilled– will inevitably encounter losses. Yes, even a highbrow mastermind like Warren Buffet will face a loss now and then. Thus, when trading on the forex market, you must grab every edge you can. And the greatest lead to get your hands on is forex signals.
But before you jump the gun and sign up for a signal service provider, you need to know the answer to one critical question: what are forex signals?
Let’s explore these popular tools that many traders use to make their trading more manageable and profitable.
So, what are forex signals?
A forex signal is a type of trading signal that alerts you when it’s the right time to proceed with a currency trade on forex, indices, or commodities markets.
The recommendations provided by forex signals are based on particular conditions such as stop-loss levels, take-profit points, and strategies experts have used for similarly situated trades. Thus, these signals are useful tools to incorporate into your forex trading decisions.
How are they developed?
We can’t fully understand what forex signals are without understanding their origin. These signals are developed by professional or expert traders, analysts, and companies. They create these signals by using a series of analyses, which is influenced by technical analysis chart tools and news-based events. The series of analyses is what makes up a forex signal system.
To further break down how this works, professional traders leverage the list of analyses to generate recommendations for the forex market by looking for patterns and previous outcomes related to market activity or other relevant economic indicators. The recommendations they come up with become the forex signals that instruct whether to buy or sell a currency pair at any point.
How do you access forex trading signals?
Using a forex trading signal service is pretty straightforward. Many different services offer signals and tools. Once you download and sign up with a service provider, you can choose to receive signals by your preferred method of communication, like email or text. You may even be able to opt for notifications via social media platforms.
In addition to setting up your preferred method of communication, you’ll need to choose the type of signals you want to get alerts for.
Choose your type
A complete answer to the question, “what are forex signals?” must cover the types of signals you can receive notifications for. These include free or paid signals, entry or exit signals, and manual or automatic signals. Let’s go over each one.
Free or paid
Signal indicators on forex services may be offered for free or for purchase. Typically, free signals are available on a trial basis or for a predetermined amount of time. But, a few service providers offer free signals for an unlimited period.
If you opt to receive paid signals, you’ll need to either pay a one-time fee or purchase a subscription.
Entry or exit
If you choose to receive entry signals, you’ll be notified when there’s an opportune time in the market to initiate a trade position. Conversely, selecting exit signal notifications will alert you when it’s a good time to close one of your open trade positions on your trading account.
Manual or automatic
A thorough answer to the question, “what are forex signals” depends on whether you’re inquiring about forex manual signals or forex automated signals. So, let’s talk about each type.
Manual signals are based on human analysis. Thus, a human operator, such as a professional or expert trader, generates the trading signals. Forex signals that are manually generated are typically used by advanced traders because they enable more control in trading decisions than automatic signals.
Automated signals are generated by mathematical algorithms, which are programmed to alert a trader when predetermined conditions are met. These signals are usually used by novice traders since they handle most of the decision-making for the trader.
What these on-the-fly signals include
Now you know what forex signals are and the different types of signals you can receive. But what exactly do these signals tell you about the market activity?
Let’s discuss the main points forex signals include and what each point tells you about your trades in the forex market.
Stop-loss
Wondering, “what’s a trading signal that indicates a stop-loss point?” It’s a forex signal that includes a stop-loss level. Stop-loss signals represent an exit point so you can protect your funds. In other words, these signals pull you out of a trade before losses start ramping up should the market move against you.
Two common signals to reference when you set stop-loss levels are stochastic oscillators and rate of change.
Take-profit
A take-profit point is the opposite of a stop-loss point. Meaning take-profit signals trigger an automatic sell-off once the profit level hits a set rate.
Action
Many traders love setting up action points because they provide crystal clear indications regarding price movements. And, what are forex signals good for if not transparent?
Action points generate “call-to-action” signals, which tell you when certain price movements are about to shift. In turn, this can help you determine whether you want to buy or sell.
Current market price
A current market price (CMP) signal provides information that helps traders compare the price of a currency pair as they track potential buying opportunities. CMP signals show the price of a targeted currency pair as it reaches any of your predetermined criteria, such as overbought conditions or lines of resistance.
Why forex signals are the trump card that every trader should leverage
Forex signals are what many traders use in the forex market because of the tremendous benefits they provide. A few benefits are that they’re easy to use, they enable you to react quickly, and they shorten your learning process on the forex market.
It’s not rocket science
If you’re eager to learn how to use forex signals but nervous about what that entails, you can stop sweating. It’s quite easy to figure out what forex signals are and how to set them up to notify you with market-related suggestions. Many novice traders sign up for forex signal service providers because of their user-friendliness.
Speeds up the decision-making process
Every trader in the forex market knows how incredibly fast conditions can change and that trends can spread like wildfire. Thus, it’s tough to make a rational decision void of emotion when time is of the essence. Thankfully, forex signals automate the trading process— taking out the emotional aspect in decision-making; and, in turn, expediting your decision to act on a trade.
Curbs the learning process
As kids, we learn by mimicking behavior from adults, and in terms of how to understand forex, it isn’t much different. With forex signals, traders can study and mimic the behavior of expert-level traders in the market. This presents a much faster way to learn what forex signals are, as novice traders can get their foot in the door and make money while learning about the market at the same time.
Before you dive in
While understanding forex signals is pretty straightforward, you still need to have a good understanding of current market conditions and trends to fully reap the benefits these signals provide. Likewise, any type of trading comes with risk, so make sure you know the level of risk you’re comfortable with or have a risk management strategy in place before jumping in.
The bottom line
Whether you’re simply a beginner or a whiz at trading, incorporating forex signals into your trading strategy is something you can't ignore. So, to survive and profit in the fast-moving, ever-shifting forex market, start using forex signals today.