Forex or FX signals help Forex traders make decisions at the right time. FX Signals are essential tools for a trader but often poorly understood by many beginners.
For this reason, we’ve put together a guide to help you understand what Forex signals are, their benefits, and how to find the best ones for you as a trader.
What is a Signal in Forex Trading?
Essentially, FX signals are ideas. You receive these ideas from a source with information suggesting that making a move at a specific time could be advantageous.
The world’s largest trading fx market is incredibly complex, and traders cannot always conduct in-depth research themselves. For this reason, they use FX signals provided by algorithms or analysts to determine when to open or close a position based on currency behaviors.
How Do Forex Signals Work?
Signals alert traders to the entry and exit point of a Forex pair (or currency pair) in a specific timeframe. Timeframes can cover quite a range — some are intra-day, while others cover a period lasting weeks or months. You can choose the type of timeframe you want alerts for, including signals that cover multiple timeframes. The process goes like this:
- A signal provider uses its analytical skills to determine that a currency pair is in a good position for traders to go short or long.
- A trustworthy provider assesses a currency pair‘s pivot point before communicating this information to its subscribers.
- Subscribers can trade based on the provider’s signal, leveraging their analytical capabilities to exploit a critical pivot point.
Using a signal in this way usually means joining the rush rather than being the first in line. While we all dream of being the first to capitalize on a good position, reliable signal providers tend to wait until they know which way the market is moving before sharing information. Doing so, they minimize risk to traders.
Forex Signals Advantages
Given the analytical knowledge needed to successfully operate in the Forex market, basing decisions on a signal from a trusted provider is one of the best ways for traders to make good returns. Advantages include:
- Up-to-date access to relevant information
- Signals presented concisely, making it easy to reach a swift and informed decision
- Time saved on extensive research
- Insight into currency pairings that you may not have noticed otherwise
Are Forex Signals Legal?
There is some debate about the legality of Forex signals. If you consider a signal as trading advice, then it needs to be from a provider regulated by the regional authority. However, if you consider a signal to be a simple informational statement, a provider only needs to offer a disclaimer that this is not paid advice.
The waters are slightly murky here, so we’d recommend only working with providers registered with regional financial conduct agencies such as the FCA.
Types of Forex Signals
Depending on your activities as a trader, you may find some forex signals more valuable than others:
- Paid and Free: mostly, this is a paid service. However, you can receive free services from some providers.
- Entry and Exit Trading: for short-term trading, you’ll find that most services describe both entry and exit trading. However, some providers specialize exclusively in entry or exit points.
- Manual and Automated: many brokers provide automated signals, i.e., they use an algorithm to analyze market behavior. Some specialist providers offer manual signals generated by a research team.
Technical vs. Fundamental Signals
There are two main types of analysis used by providers to generate FX signals:
- Technical signals come from analyzing trends in currency pairs and finding patterns in their behavior. It means reading the behavior of currencies as distinct from the unpredictable real-world events that affect value.
- Fundamental signals are contingent on analyzing political and economic factors that may influence currency behavior. For example, when a country changes government, economic instability may affect the currency value. These events inform the signal analysis.
Finding the Best Providers of Forex Signals
Many trading platforms offer trustworthy signal services, although you will have to pay for them. However, it is worth it to always do your research to verify the signals come from a legitimate source.
If you get your signals from an outside source, investigate the provider thoroughly. Googling “provider name + scam” is usually a good start. There are many scam signal providers out there.
Criteria for Choosing a Signal
- Free or Paid: smaller traders may wish to use a free service, but note that most trustworthy services are paid. While some quality providers offer free signals, always thoroughly check that the provider is legit if its service is free.
- Manual or Automated: finding a manual service can enable you to work more effectively in trading services convenient to you.
- Communication Channels: how would you like to be notified? Some services provide updates on social media, which may not appeal to you if you prefer a phone notification.
Identifying the Best Forex Signals
- Relevance: Does the signal concern a currency pair you want to trade?
- Entry Price: Smaller traders may find some entry points beyond their means.
- Stop Loss Level: The signal must indicate the point at which your trade should automatically close in case of market changes.
- Take Profit Level: The signal should indicate the point at which trade should automatically close to optimize profit.
Forex signals from a trusted and regulated provider are a great way to increase the profitability of your trading experience. Just make sure you use caution when choosing a provider.