How to Catch Effective Forex Signals
No matter if you are a newbie or an expert trader, it’s worth using professional forex signals. Signals save your time and provide a higher chance of a successful trade if made by experts.
Also, it’s an opportunity to use others’ wisdom to improve your skills or discover a new method of trading. However, not all signals are reliable. Let's learn how to distinguish a strong signal and a failing one.
Forex Signals: Definition
A forex signal is a recommendation to open a position based on particular conditions. Usually, signals occur in the currency market. However, they can be provided in other markets as well. Signals are made by professional traders, analysts, or companies. They can be both free and paid.
A forex signal is a recommendation to open a position on particular conditions.
A forex signal includes information on the perfect entry point, take profit, and stop-loss levels. The best recommendations contain the reasons for such an alert. Thus, you have information on a profitable signal and the strategy or method an expert used. It helps you gain new knowledge.
Why to Choose FX Signals
There are several reasons why you should rely on signals, and not only on your decisions.
- Expert opinion. If you are a professional trader, you can use forex signals to get confirmation on your opinion. Also, it’s a great option to save your time. In case you are a beginner, expert alerts will help increase the chances of a profitable position.
- Gain knowledge. No matter if you have just started trading in forex or you are in the market for an extended period of time, there are different approaches and strategies you can still learn.
- Save your time. Sometimes, it’s not easy to find suitable circumstances to open a position. You may waste lots of time. To save your time for other achievements, you can use others’ signals.
What Is Included in Trading Signals
Let’s consider the points that are included in trading recommendations:
- Entry point. As we mentioned above, a forex signal contains information about an entry point. Thus, it tells you at what level you should enter the position. Usually, professionals give signals for upcoming positions. Therefore, it’s unlikely you will see a signal that offers to open the trade immediately, because a trader may read the signal in several hours. Thus, unclear conditions will lead to losing positions.
- Take Profit. It’s not enough to enter the position at a reasonable level. It’s also necessary to know where to exit a successful trade. Thus, the signal will contain the take profit level. There can be several such levels if the alert is promising.
- Stop Loss. It doesn’t matter how long you trade; there will always be a risk of a loss. Even Warren Buffett and George Soros make mistakes as two of the most wealthy and successful investors in history. To limit the loss, forex signals include a stop loss level. If the market moves against you, you will have a chance to save your funds.
- Buy or Sell. Any signal should say whether to buy or sell the asset. Some alerts may have both an alert to sell and to buy. It means that the current situation is unclear. Thus, the direction of your position will depend on the specific conditions that should be met, so one of the signals works.
- Additional information. Usually, traders and analysts explain the reasons for a signal. Among the various reasons, there are pattern, candlestick, or indicator conditions. Such information may also include a chart.
Forex Signals: Types
There are different types of signals. Let's start with the first classification. As there are two main types of analysis, we can divide signals into fundamental and technical. However, we always say that the most accurate signals are based on both types of analysis.
The fundamental analysis is based on news and economic data. Analysts who use fundamental analysis base their signals on economic releases, political and economic news. Thus, fundamental signals work ahead of significant market events.
One of the economic events that provides more precise signals is a central bank’s meeting. For example, if the Federal Reserve is anticipated to cut the interest rate, the US dollar will depreciate ahead of the meeting and sometime after the decision is announced. Therefore, the signal will recommend buying the EUR/USD pair.
|Lots of opportunities. If you open the economic calendar, you won’t find a working day without any release.|
Unclear conditions. As the outcome of fundamental events is hardly predictable, it’s more complicated to make fundamental signals, rather than technical ones.
Moreover, most of the news and economic data is accompanied by high volatility. Thus, it’s hard to determine a stop loss level. Sometimes, they are placed too close, and traders just exit a trade with losses.
Technical analysis is based on the historical movements of the price. Analysts use different instruments such as indicators, chart and candlestick patterns that predict the price direction. Unlike fundamental signals, technical ones are often made by not only analysts but forex robots. A forex robot follows algorithms that include particular conditions alerting possible entry and exit points.
For example, you trade the GBP/USD pair. The RSI indicator predicts a price reversal. The indicator’s line has crossed the 30 level bottom-up; it’s a signal of a bullish movement. Thus, the signal will recommend buying GBP/USD .
|Easier than fundamental signals. Technical analysis is more precise as it is based on particular conditions and previous market moves. To make a technical signal, it’s enough to learn how indicators and patterns work.||No feeling of market sentiment. It’s efficient to consider previous market movements and base your signals on specific market conditions. Still, the situation is never fully repeated. Thus, it’s essential to consider current events.|
Manual signals are made by people. Professional traders or analysts working for a company or alone use their experience, knowledge and proven strategies to provide trading recommendations.
|More comprehensive analysis. People evaluate not only technical conditions but the market sentiment and fundamental factors. This provides a more comprehensive picture of the market.||A probability of a mistake. Although signals are provided by professionals, there is always the risk of a mistake as no one is perfect.|
Automated signals are provided by software programmed with a specific algorithm that follows price movements and generates signals regarding particular circumstances.
|A smaller chance of a mistake. Bots are not affected by emotions, so they base the signals on calculated algorithms.||No feeling of the market mood. Robots don’t consider fundamental factors that are crucial for decision-making.|
Some companies provide paid signals. Thus, to get them, you need to pay a fee or choose a subscription plan.
|More reliable. There is no guarantee the signals you buy are better than free signals, yet you have the right to require a return in case they lead to losses.||Money. You have to pay for these signals.|
|Constant. Usually, paid signals are released at a specific time, unlike free signals.|
Most of the forex brokers offer free signals published on their websites and available not only for their clients. Moreover, many famous traders publish trading recommendations, mostly on social networks.
|Free. Evidentially, the main advantage of free signals is that you get a chance to earn money for free with no effort.||No guarantee. If you take signals for free, you can’t require anything from a provider.|
|No schedule. A provider decides when to deliver signals.|
If we consider short-term signals, they always have an entry point. If you find a trading recommendation for the short-term position with only an exit level, it’s more likely the signal will be failing as there is no clarity on the entry point.
|The main point. The entry point is the most critical level for successful trading.||There are no disadvantages to entry signals. However, if signals don’t include any information on the exit point, the risk of loss increases.|
Usually, signals provide the entire range of information – entry, exit points, and stop loss. However, if the position is held for an extended period of time, there can be signals with only the exit point on the current open trade.
|Additional signal. If you hold a position for an extended period of time, it’s good advice on how to exit with a profit.||Only for long-term signals. Short-term signals without an entry point may just confuse traders and lead to failing positions.|
Where to Find the Best Forex Signals
Forex signals are available online, and you can find forex signal providers very quickly.
Most forex brokers provide signals. They can either do it for free or via a subscription plan. If the broker is trustworthy, it will offer a trial period to test whether the signals work. Plus, they may have a track record of successful trades that will confirm the alerts are workable.
The main advantage of this signals provider is that if you find a reliable broker you want to trade with, you don’t have to waste time seeking a signals provider. Moreover, forex brokers may offer signals for free for their clients.
There are many signal providers. However, if your forex broker offers trading signals, it’s the best option for you.
Also, there can be companies that provide paid forex signals. The main drawback you may meet is the signals’ effectiveness. Reviews will help you to evaluate their efficiency.
There are many companies and individuals that program robots for forex signals. However, such robots are not free. Be careful before buying them as robots have many limitations. They don’t evaluate market sentiment and don’t consider fundamental factors. Check the signals before starting.
If you trade on a MetaTrader platform, there are signals providers you can subscribe to. Moreover, you can implement robot algorithms that will alert you about profitable opportunities. MetaTrader allows many providers to submit their signals. Thus, there is a risk of failing recommendations.
There is another option that is similar to providing signals. While using forex signals, you can decide whether to use the signal fully or not. If you have previous experience, you can take the signal as advice and modify it.
How to Choose the Best Signal Providers
It might be challenging to find a reliable forex signal provider as there are a vast number of companies, private analysts, and investors in the market.
The first decision you should make is whether you are ready to pay for signals or not. If you choose paid recommendations, you can require information on the success rate. Moreover, a provider of paid signals should be authorized.
No matter whether the signal is free or paid, you need to get a confirmation.
Even if you use free signals, a provider may share a success rate of their signals by posting the performance of previous trades. If there is no information on a success rate, you can use a demo account to check whether the signals work.
Libertex offers a demo account that is similar to a real one. Thus, you can trade with fake money without losses and check whether the signals are efficient.
Before relying on a signal, check what data it includes. Reliable signals should consist of data on entry, exit point, and stop-loss, together with an explanation of how the signal appeared on the chart. Robo-signals don’t provide an explanation. But their reliability is based on mathematical algorithms.
If available, you can check reviews of the signal provider. However, only companies that specialize in paid forex signals will have reviews. If you consider the free alerts of a private analyst or trader, the chance to find reviews is smaller.
Check reviews and don’t believe promises on enormous rewards.
Be cautious as the market of forex signals is full of scams. Thus, if a provider promises enormous rewards, it’s more likely it’s a scam that wants your money.
If you are not sure which signals provider is better, check their success rate and the range of information. If you don’t get a full explanation of the reasons for a particular signal, there is a risk that the signal won’t work.
How to Use Trading Signals
To fully understand how to read signals, let’s consider an example. Let’s imagine you want to trade XAU/USD pair. The signal is: SELL 1,764; TP 1,759; SL 1,766.
Step 1. As you can see, it’s a signal to sell gold against the US dollar. The entry point is 1,764. Thus, you should place a sell order at this level.
Step 2. Place stop loss (SL). As it’s a sell signal, the stop loss should be placed above the entry point.
Step 3. TP stands for a take profit level. Place take profit or so-called exit point below the entry level.
If the signal doesn’t contain a chart, the written information may include the information on the current price. Thus, when reading the recommendation, you will understand whether the signal still matters or not.
How to Choose Forex Signals
Signal providers try to create recommendations that suit a wide range of traders, but there are several rules you should follow to understand whether the signal suits your account and strategy:
- Evaluate the risk. If the signal suggests holding a position for a long time, you should understand whether your account will handle possible market fluctuations.
- Check before using. If you use Robo-signals, remember they are based on technical analysis that doesn’t consider fundamental factors that may lead to high volatility. Thus, check the market conditions. Simultaneously, even if you rely on signals made by people, you should know that unpredictable news comes up frequently. The time lag between the signal and order placement may cost the success of your trade.
- Choose preferable assets. There are lots of signals for different securities. However, not all of them will match your aims. For example, exotic currencies are not the best option for newbies as they bring high risks.
Trading Strategies and Forex Signals
As we mentioned earlier, the choice of trading signals depends on your aims and account. Moreover, different strategies may affect your decision. There are companies that provide signals only regarding a specific strategy.
Trading strategies have a big impact on FX signals.
Let's look at scalping, for instance. Tiny positions are the core of this trading strategy. Thus, signals for scalpers should apply to small timeframes, preferable, not higher than one-hour. Moreover, such signals will have a slight difference between the entry and exit points. Also, there can be several take profit levels that will allow you to take the profit step by step.
Intraday trading assumes you hold a position within a day and close it before the next trading day arrives. Thus, the trading signal should be based on medium-term timeframes such as one-hour, four-hours, and daily. The difference between entry and exit points will mostly depend on fundamental analysis. If there are significant economic events or news, there might be a big difference between the points.
In general, swing trading is based on technical analysis. A signals provider should find a prominent pattern or indicator that signals market fluctuations. Swing positions can be held for longer than one day. Thus, the spread between the entry and exit points may widen significantly.
In conclusion, a forex signal is a useful assistant for both beginners and professional traders. It saves your time, efforts, and provides an opportunity to place a successful trade. However, a considerable number of signal providers make it difficult to choose a reliable one.
So, to check whether the provider is trustworthy, you should use a demo account. Libertex demo account gives you a free opportunity to test the signals and ensure they work with a high rate of success.
Check the answers to the most frequent questions about forex signals.
What Are the Best Forex Signals?
The best forex signals are those that are provided by people and combine fundamental and technical analysis. The cost of signals doesn’t matter, as both free and paid alerts can be useful.
Are Forex Signals Legit?
Forex signals are legit and submitted worldwide. Signals can be provided not only by companies but also by individuals.
What Is Signal in Forex?
A forex signal is an alert to open or close the position regarding the market conditions.
How Do You Get Forex Signals?
To get forex signals, you can look for a forex broker, a company, analysts, or traders who provide forex signals.
How Do You Analyze Forex Signals?
Forex signals are based on technical or fundamental analysis. They provide the necessary information on entry and exit points together with stop loss. To choose a forex signal, consider your aims, funds, and strategy.