Forex signals are trade directions provided ideally by a skilled and profitable trader to other traders who have not quite attained the same level of mastery but seek to make profits from the forex market. It sits on the basic logic of a product being supplied to meet demand.
Sometimes people who are not so skilled in analyzing the forex markets want to trade the markets profitably, therefore, they seek a solution. Some traders who have tried their hands at trading themselves and have not been able to make reasonable profits, also look for other ways to trade the market. These constitutes demand.
On the other hand, there are other traders who consider themselves successful at trading the forex market, and will love to show others how to do the same – supply.
Forex signals are offered by so many providers and through numerous channels. In this post, I will be examining the components of forex signals, how forex signals can be traded and some of the channels by which they can be gotten.
Components of Forex Signals
There are four major components or parameters that should be present in any trading signal. These are entry, exit, stop loss, and take profit levels. Some other types of signals may also contain lot size or cancellation parameters.
Entry – This stipulates the price at which the trade should be entered.
Exit – This stipulates the price at which the trade should be closed. This may be a single price or multiple prices depending on the underlying strategy. The exit point may be either way, in profit or loss.
Stop loss – This indicates the distance of the stop loss level from the entry price. This is a particularly important part of the signal as it can be used to prevent huge loss of capital.
Take Profit – This indicates the exit point in the case of a profitable trade. it is an order which is used to automatically lock-in profits even if the trader is away from the terminal.
Lot size – The signal may or may not come with specific lot size instructions. This is because different traders have varying account sizes and what may be considered good for one trader may be outrageous for another. Rather risk management tips may be sent with the signal, while some do not mention it at all. For some automated systems, algorithms are used to adjust the positions to the various account sizes. It is however essential to always implement proper and healthy risk management rules.
Cancellation Parameters – Some trade signals come in the form of pending orders. The traders are asked to set these orders, and if the order parameters are fulfilled the trades are executed. But in the case of the order parameters not being fulfilled, there may be instructions on when to cancel the set orders.
How To Trade Forex Signals
There are two ways to trade forex signals, these ways may be fairly dependent on the route through which the signals were received. The two ways are manual and automated ways of trading forex signals
Manual Trading of Forex Signals – Forex signals received through most channels can be traded in this manner. It involves the trader receiving the trade parameters, then manually setting an order with these parameters. If the trade is not yet active, limit and stop orders may be employed in setting the trade. When trading forex signals manually, traders should always apply proper risk management rules.
Automated Trading of Forex Signals – Some channels of receiving forex signals such as copy-trading offered by brokers or set-up by individuals or through mql5 signal service can be automated. These channels of receiving forex signals are automated by default. This has its advantages and disadvantages.
How to Get Forex Signals
As stated earlier, forex signals can be gotten from various channels, and while the list below may not be exhaustive, it does contain the major channels through which forex signals are transmitted.
Broker copy trading platforms – Numerous forex brokers today offer what is call copy-trading accounts, where “investors” can put their money and it is traded for them by copying trades from a signal provider of their choice. Statistics such as profitability, drawdown, etc. are usually provided to aid the decision making process.
You can find out which broker offers this kind of service by reading broker reviews.
The mql5 market – Another source of forex signals is the mql5 market signal service. Different traders can register their accounts as signal providers. This can even be done straight from the MetaTrader platforms. Traders can subscribe to their signal provider of choice from the mql5 website.
Email – Some other signal providers deliver trading signals directly to your email address where you can access it.
Websites – Some trading signals are hosted on the websites of the providers, and traders have to visit these websites to view the trade signals.
Applications – Some signal providers choose to deliver their signals to clients through desktop and mobile platforms.
Trading forex signals does have its advantages, without it no one would use them. Below are some of the advantages of using forex signals.
Time-saving – Trading using forex signals can be time saving in that the trader does not need to spend prolonged hours on analysis. Also when examined from the learner’s perspective, if a good signal provider is found, it shortens the time to profitability.
Automation – As stated earlier, forex signals received through certain channels afford automation. This reduces the drag that can be associated with trading manually.
To learn more about automated trading, click here.
Leverage other people’s expertise – Trading forex signals allows you to leverage the expertise gained by others to make profit in the forex market. This is good as you don’t necessarily need to achieve their level of mastery before seeing similar results.
As much as trading forex signals has its advantages, there are also some downsides to it. Below are some of them.
Never gaining mastery
If a beginner trader starts trading forex, uses forex signals right from the start, and makes a profit. There is a danger that the trader never learns how to pick these trades themselves. Instead, they just continuing enjoying the ride until it stops or crashes, because nothing lasts forever. This would leave the trader in dilemma and would start looking for another signal provider, which is not too good.
Susceptibility to fraud
Those who are totally dependent on forex signals can be susceptible to being scammed. Forex signal scams are one of the major genres of scams in the forex industry.
You can learn more about forex scams here.
Traders should be aware that in the forex market, there is no “holy-grail” system which has 0% losses. This is usually used to goad ignorant traders into buying fake forex trading programs.
Because the trader does not know how the signal was arrived at, it may not be possible for the trader to evaluate the risk-to-reward ratio. Asides this when trading automated signals, the lot sizing and risk management strategies may not be ideal for all the traders on the platform. As a result, there may be too much risk exposure that can have disastrous consequences.
In conclusion, trading forex using signals can be very profitable provided you find one that works. It does not go without mentioning that when it comes to forex, risk is a common theme and it is not left out when signals are concerned. Trade safely and profitably!!
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