When you start forex trading, you will quickly see that it makes sense to take advantage of every tool at your disposal, perhaps including forex signals. But what are they and how to use them?
A forex signal system is a set of analyses used by foreign exchange traders to guide their forex strategy and actions. These signals are either based on technical analysis or news-based events and give you a hint on which currency pair you should buy or sell. Many day traders follow signals, which normally work with a continuous feed of signals or suggested actions to take. Forex Signals can cover currency pairs, commodities, or stock prices.
There are two types of systems:
These signals can be communicated to you through various channels, such as email, SMS, text, and even social media platforms like Telegram. They are meant to be on-the-fly info to quickly incorporate in your trading strategy.
A Forex signal service usually take on the four following forms:
Every signal typically includes 4 important bits of information the trader should understand, especially if he/she is to place a trade manually based on the signal.
As you know, there is always quite a gap between theory and practice, so we figured we would walk you through the deciphering of a forex signal. This will give you a better grasp on what a signal is and what it looks like in practice.
Signals can take on many forms depending on the service you are using, but by and large, they should look like this.
For example, you might see "Sell USD/EUR at CMP 0.9410 - SL 0.9414 - TP 0.9389".
Let's break that down shall we? In this example, the call to action is to "sell" with the pair in question being "USD/EUR". The CMP (Current Market Price) is listed at 0.9410, the dictated Stop Loss (SL) at 0.9414 and the Take profit (TP) at 0.9389. As you can see, while it may look complex, once you learn a couple abbreviations, it is really child's play.
There are no barriers of entry to using forex trading signals. Sign up, pay if you need to, and implement information in your trading account. However, this does not mean that signals can simply replace a good knowledge about the market.
Following them blindly is not a quick recipe to success - otherwise, everybody would do it. Signals can offer you quick info and interesting insights you might have seen but using them without second thought could be problematic.
First, you need to understand that all providers are not equal. Some can brag about a good 60% success rate, but others are much lower and others are straight up scams. Secondly, the forex market can be very volatile, which means that although you have the possibility to quickly make money on successful positions, you can also lose a lot in a heartbeat. Your tolerance to risk should also be considered. Finally, emotionless advice - signals - can be a very useful tool, but the signal cannot understand the entire market. A good market overview and understanding will have to be attained for you to really make profits on the long term.
Discover more about how to Learn Forex Trading with FlowBank while delving into the fascinating world of forex signals.
Sources:
Forex Signal System, in Investopedia
How to Read and Understand Forex Trading Signals, in Value Trades