What are trading signals in Forex and how do they work?

Soon they realize that becoming a consistently profitable trader takes a lot of time, resources and there’s a lot to learn about.

Trading signals give both professional and beginner traders tips and ideas on where to place their order. Most professional traders have already developed their own trading strategies and ways to analyze the markets. As a result, the vast majority of trading sinal users are novice traders.

Who creates and provides trading signals and why?

Before deciding which signal provider to choose, it’s important to study their motivation first to make sure you are not being scammed out of your money.

• Selling trading signals is an additional way to profit from the markets for some professional traders.
• Many brokerage firms hire analysts to create trading signals and tips for their clients for free of any charge. In return, brokers are earning income from spread markups and trading commissions.
• There are many signal provider companies that charge monthly fees for providing trading signals.
• Be aware that many trading signals are created by scammers that claim to have the best signal provider strategies, while the opposite is true. Financial trading is full of money traps and fake reviews.

Are trading signals for you?

In case you are beginning your journey and haven’t developed solid trading strategies yet, trading signals can definitely help you make more informed decisions. Make sure you are choosing the signal providers that explain the reasons for placing the orders to enhance your knowledge.

Good trading signals should give you a trading edge. Trading edge is earned when utilizing these two scenarios or a combination: your risks should be smaller than your rewards or if the risks and rewards are 50/50, your signals should have a higher win rate. In order to make an effective use of mathematical trading edge, risk management is vital. The reason is simple, even the best trading signals can undergo periods when they fail to generate profits. Risk management, in other words risking a small percentage of your balance each time you place an order can protect your balance from blowing up.

Many novice traders use a huge leverage and make their account balances vulnerable against a couple of failures. Even the best trading signals can not guarantee that you will earn income unless you manage your emotions and risks accordingly.

Do professional traders ever use signals?

Generally, professional traders avoid other people’s analysis. There are a million ways to make money on the markets, and as Jack Schwagger said in his famous book, all of them are very hard to find. Each trader is very different from the other and has his own trading strategy that fits his personality. For instance, fast thinkers might prefer high frequency trading, while more analytical ones love position trading. Some people choose stocks over Forex pairs. Some like to swing trade while others want to invest long term. The list goes on and on. And you should already get the idea. Not every trading signal is for everyone, even if it’s perfectly explained to you.

Mostly seasoned traders use trading signals when they do not have enough time to analyze the markets themselves. They are heavily involved in developing the trading strategies and outsource the finding trading opportunities part.

Ultimately every professional trader knows the decision is his/hers to make and when the time comes to evaluate the progress, he/she can’t blame bad results on other people’s signals.

Trading using signals manually vs automatic copy trading

Another way to use trading signals is through algorithmic copy trading. Copy trading enables traders to passively participate in the markets and simply copy successful traders’ performances in exchange for monthly fees charged by the signal providers. The modern trading platforms enable trades to be automatically copied and many brokers are offering this option. However, the downside is that you are learning very little about trading strategies compared to manual trading.

As already mentioned, manual signal trading involves providing you with entry and exit points. Ideally the signals should also include explanations. In manual trading you are choosing the exposure level. Furthermore, you can ignore and skip some traders when you don’t agree with the arguments behind them. The ultimate goal should be to trade with your own ideas, without the help of trading signals.

Trading signals as a way to scam beginner traders

The world of financial trading is full of scammers. Beginner traders are especially at risk as they lack the experience to tell the difference between fraud and genuine trading signals. Usually scammers are promising large profits in a short period of time.

Now let’s discuss one of the scamming scenarios: a scammer sends trading signals to 1000 traders. He or she tells 500 traders to buy an asset and tells the rest to sell the same asset. After a trading session, 500 traders have received the trading signal that has worked. In the second round, 250 people get the winning trading signal. In the third round, the scammer has sent 3 trading signals that have worked to 125 traders. Now it’s time to send those 125 people an email asking for money for the 4th trading signal. As you can see, it’s easy to get those 125 people trapped into thinking that they have found the perfect signal provider. They might even place highly leveraged trades for the next order and lose everything. If your signal provider is telling you that the signal is very reliable and you should risk a large amount of your money and win big, that should be the biggest indication to doubt your provider’s trustworthiness. Get rich quick schemes to operate on such promises. The best way to get reach on the markets is to compound your profits. Reinvesting and increasing the earnings gradually is a tried and true method.

Following trading signals blindly is a bad idea. It’s best to know the reasons behind the trading decisions. Understanding the reasons reduces the risk that you are being scammed and increases your level of understanding of technical and fundamental analysis. The ultimate goal is to trade without waiting for other people to tell you where to place your orders.

Trading signal fees

There are many trading signals that can be found for free online. The reasons are various, many analysts are trying to promote their trading strategies, many brokerage firms are trying to encourage traders to place orders and so on. Which is why you should investigate who’s behind the analysis to understand their motivation. For instance, if a broker makes money from spread markups, it might be interested in you placing a large number of trades, which might lead you to overtrading and loss of funds.

There are many trading signal providers that charge traders monthly. Usually monthly fees range from 30 USD to 150 USD.

What to look for in a signal provider?

There are a couple of factors to consider when choosing a signal provider. The first and foremost is the company’s or individual’s reputation and trustworthiness. Many companies are claiming that they are the best, however, it’s very difficult to test those claims. The best thing you can do is to read online reviews and online forums before deciding. Keep in mind that there are lots of fake reviews made by signal providers themselves.

The second thing to consider is the number of signals you will get for the money you pay. Usually signal providers divide clients into regular and premium users. You should check out many different providers to find out who has the best offer.

Additionally, you should consider the time zone and availability. The best Forex signal providers operate 24/7.

Moreover, it’s important to get free trials and money-back guarantees to try out the services before subscribing to monthly signals. And many signal providers do offer up to 30 days of free trials.

How to become a trading signal provider and should you?

Before answering that question, let’s explain what we mean when we are talking about becoming a trading signals provider. There are two types of signal providers:

• Institutional analysts that are working for brokers, signal provider firms, news, and analytical websites, and investment companies.
• Retail traders are selling their trading ideas to other traders.

Becoming an institutional analyst usually requires a good level of education. In addition, experience and connections play a large role. Some institutional analysts may have never placed a trading order but they’re good at reading the charts and connecting the market news with technical data.

On the other hand, retail traders that sell their signals are heavily involved in order placements. Becoming a trading guru and asking traders to buy your signals is not an easy feat. All of a sudden your trading strategy becomes responsible for losing or winning money for other people. The level of responsibility skyrockets.

Retail traders are using social media to promote their trading strategies and sell trading signals. Usually they are charging subscribers with monthly fees or fees per signal. However, manual signal trading is limited to certain time frames. Thanks to the fact that signals are sent via emails, chats etc. the signals can only be for position trading.

Main takeaways

To sum everything up, there are many different kinds of trading signal providers. There are institutional analysts, retail traders, and dedicated signal provider companies. It’s important to make sure that your signal provider is reputable, offers competitive fees, fits your time zone, and offers free trials. You should always look out for scammers as the industry is full of it. It is no secret that most trading signal consumers are novice traders and they are the most vulnerable against money traps.

In addition, there is an automatic copy trading option, where signals are automatically applied when copying a successful trader’s performance. Manual trading gives traders an opportunity to place or ignore trading signals.

Trading signals are great for learning how to trade. But keep in mind that professional traders base their decisions on their own analysis and if you’re planning to become a full-time trader, you should aim to create your own trading strategies at some point.

FAQs on trading signals in Forex

Which signal is best for trading?

Trading signals that give you a broad explanation of the entry and exit are the best ones. Ideally signals should also include stop loss targets. Well put together trading signals can enhance traders’ knowledge and turn novice traders into professionals. Moreover, good trading signals can give traders favorable risk/reward ratios and an edge.

Are trade signals worth it?

Depends on who you ask. Many beginner traders use trading signals to develop into better traders. More seasoned traders rely on trading signals to save time on analysis. However, the vast majority of professional traders trust their own judgment when it comes to trading and avoid signals. Some trading signal services cost money, while others are free. Ultimately it’s up to an individual trader whether it’s worth it to invest in signals or not.

How do you identify forex signals?

Forex signals are usually sent via email, chat, social media or trading platforms. They are generated by professional traders or trading algorithms. Identifying the Forex signals is easy as they typically provide traders with entry targets, timeframes, exits and stop loss targets.

Do professional traders use trading signals?

Yes. However, the process is different from usual practice. Generally professional traders are heavily involved in developing trading strategies. Trading signals are based on these strategies and help traders save time on searching for trading setups. Outsourcing the search for signals frees up the time for traders to keep developing the trading strategies.