What You Need To Know About Forex Trading Signals

by John Callingham

Signal services are very useful tools for non-professional Forex investors. It’s a way for them to cope with the volatility of Forex markets, which are typically apt to move more rapidly and farther than either stocks or bonds. By using signal services, non-professional traders don’t have to spend all day glued to their computer screens, monitoring price movements to protect their investment.

Forex signals are buy and sell indicators based on technical analysis. Technical analysis uses historical price and volume data to statistically analyze trends. The goal is to establish, with a stated probability, the likelihood of future price movements.

A signal could be as simple as ‘Buy euros now at 1.1901’. Those signals are delivered in any number of ways, by email, SMS text message to a cell phone, IM message and so on. Some are no more than flashing text and/or icons on trading software. The software contains in-built algorithms that use the methods of technical analysis, combines it with current market data and generates a signal.

Some of the indicators used in signal services are very simple. One popular one is the Moving Average Convergence/Divergence, also known as MACD. It monitors price trends over time. Using this system, you will receive a signal if the average price of a currency goes above or below a specified threshold, allowing you to buy low and sell high — the goal of traders everywhere.

Some services offer more automation than others. Some let the trader leave standing orders to carry out signal recommendations. If a signal is triggered that suggests you buy euros at a certain price, the forex broker enters the order to do so right away.

Keep in mind, though, that Forex signals are just tools that by themselves cannot guarantee trading success. Such a trading instrument needs to be used wisely; it’s meant to facilitate trading activity, not to fully automate your trading technique. Automatic buying and selling all the time can result in losses for the trader.

That’s akin to telling your broker to make the most of your money at the least possible risk. That sounds ideal, but you’re essentially putting your financial future in the hands of another person.

There’s no denying the usefulness of signal services. Use them wisely and you don’t have to spend hours watching every market movement. You’ll be able to understand market data more easily, and you can make better buy and sell judgments.

All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.

Forex trading is not regulated. There are unscrupulous brokers who will sell promises for large sums of money. Their signals may or may not be worth the cost. Only you can decide.

At minimum, investors should use order types that help control risk. Stop-loss orders, limit orders and other common types are an essential means of limiting losses and timing buy and sell orders. That technique, commonly employed in stock trading, is even more critical in the volatile world of Forex.

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