All You Need to Know About Forex Trading Signals

As a new trader, one of the biggest challenges that you’ll face is identifying the right trading opportunities at the right time. Not to worry, even experienced traders face this too. So, what’s the solution?

Well, the long term solution is that you get better at identifying trading opportunities. With a good trading strategy and spot-on analysis, you’ll eventually get better at spotting trading opportunities and taking advantage of them. However, there’s another system that you can take advantage of to identify and capitalize on trading opportunities, and that system is Forex signals.

What are Forex Signals?

Imagine you could look over the shoulder of an experienced trader and know when they’re about to place a trade. Well, that’s essential what Forex signals are. A forex signal is a recommendation or trading idea on a specific asset to be executed at a predetermined time and price.

A forex signal can be likened to someone doing their forex analysis and telling what trade to enter, when to enter it, and other necessary information.

Forex signals help traders, irrespective of skill level, take advantage of the Forex market by providing recommendations on what to trade and when. 

Types of Forex Signals

Forex signals can typically be classified in three ways. Let’s take an in-depth look at each.

Free vs. Paid Signals

Just like it sounds, free forex signals are signals that you did not pay for and are freely available. Paid signals are the exact opposite. You pay a fee to receive access to these forex signals.  Generally, paid forex signals are of higher quality and are more reliable than free forex signals. After all, a good forex signal is more or less giving you free money.

Manual vs. Automated Signals

This is the classification of how forex signals are generated. A manual forex signal is generated by a person who is usually an experienced and professional trader.  On the other hand, automated signals are created by software that tracks and analyzes the market based on specific algorithms. 

Automated signals from trading software are usually listed on a Traders computer as an Expert Advisor (EA) or forex robot.

Entry vs. Exit Signals

This classification is based on how detailed the trading signal is. Some signal providers only provide the entry point, which is the signal to open a market position. Others provide only exit signals, which is the signal to close any relevant open positions that might be running on a trading account. Exit signals are usually used for long-term trades on financial assets. On short-term intraday trading signals, however, the signal would contain both entry and exit points.

Who provides the signals?

As we mentioned earlier, there are manual and automated signal providers. Manual signal providers are usually professional traders, market analysts, and strategy providers that provide trading signals based on their experience, technical or fundamental analysis skills, and well-developed trading strategies. 

Automated signals, on the other hand, are computer software built to generate trading instructions when the market meets certain conditions or parameters. Most automated signal providers, such as Expert Advisors (EAs) and other types of trading bots typically apply technical analysis methods that use mathematical predictive indicators, such as moving averages, stochastics, and Fibonacci levels.

Types of forex signals

There are many types of forex signals out there, so it’s important to understand what each signal means. These are four common types of signals that any prospective or active forex trader will likely experience. 

  • Action: This is a straightforward signal with a call-to-action in most instances. This is in the form of a direct “buy” or “sell” statement.
  • Stop-loss: The stop loss signal is an exit point designed to protect your investment. The stop-loss order is set at a predetermined point and will cancel a trade automatically before your losses start to accumulate.
  • Take Profit: This acts in the opposite direction of the stop-loss signal. A take-profit signal is triggered once you meet the profit level or hit a set rate.
  • Current Market Price: Some signals simply notify you about some information. A Current Market Price (CMP) signal will help you compare the price of a currency pair at the time the signal was issued to its actual price when you want to submit your order.

How to read forex signals

As a new trader, it might be a bit hard to interpret the signals you get. Signals can come in many graphical or text forms, but generally, they are saying the same thing. Here’s an example: Sell EUR/USD at CMP 1.3520 – SL 1.3545 – TP 1.3490. If you break down this signal, the signal is to “sell,” and the pair benign traded is EUR/USD. The Current Market Price “CMP” is 1.3520, the stop loss level is 1.3545, and the Take Profit level is 1.3490.

Pick your Forex Signal Provider carefully.

Because of how easy it is to use signals to trade, at least, relative to doing your own analysis, you might be tempted to believe that forex signals are a shortcut to earning from the market. However, you should know that there are plenty of dud systems around and that the success rates of various signals vary quite massively. Using forex signals to trade means that you are placing your trade’s success in another person’s hands while bearing all the risk. 

Take your time to study how successful the trading signals have been in the past and consider your risk level relative to that of the signal generator. Doing this will help you determine if using those signals would be a good idea for your account or not. 

The best solution still remains to learn how to analyze the forex market for yourself and enter trades based on that information. You should not base all your trading decisions on trading signals forever.

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