Every single day billions of dollars change hands as speculators try to profit from the foreign exchange market.
One of the key appeals is that this is an exceptionally fast and liquid environment where the value of currency pairs can change rapidly and decisively. It is also one in which these movements are often linked to wider economic and political factors.
Just as the value of equities is affected by outside forces, the same is true of the world’s major currencies. This also means that, quite often, there will be signs that can dictate that this may be the time to buy or sell.
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Trade signals defined
As a group, these indications are known as Forex trade signals and many traders rely on them to a certain extent to help with their decision making.
As we’ll see, these come in many different forms and from a number of sources. Equally varied is the way in which they are used to help with devising and finessing trading strategies.
So, hopefully, after reading the rest of this piece, you should be better placed to understand not just what trading signals are, but also whether you think they could be a useful tool for you.
Types of trade signal
As already mentioned, there are many different kinds of signals, both in the way that they are generated and in the information that they use to back them up.
Fundamental Analysis
Although Forex trading is often seen as a short-term exercise, Fundamental Analysis looks at the kinds of factors to affect currency values over the longer term. These include the state of the economy, employment rates and manufacturing output.
Technical Analysis
While Fundamental Analysis is focused on the present, Technical Analysis dissects price charts and looks to the past to identify patterns that may be set to re-occur.
Manual Signals
There is a great deal of debate about what generates the most reliable Forex signals with some believing that individual traders are the ones with the greatest insight. It’s true that they may be able to take a more nuanced view of what is set to occur in the market, but their views may also be swayed by personal opinion.
Automated Signals
Therefore, many people who are looking for the most accurate Forex signals rely more on ones that are generated using complex algorithms that analyze market movements and which are set to detect clear signals.
These are 100% objective judgments that are based on solid financial and statistical evidence – although, naturally, they can never be wholly accurate as so many other factors come into play.
Free Signals
While some signals are only available for a monthly subscription fee or similar, a growing number of online trading platforms provide signals for free. Often just as accurate as the paid-for alternatives, they are increasingly popular with traders.
Entry and Exit Signals
The final category of signal is split into two – whether to buy or sell, depending on prevailing and predicted conditions. Some providers offer either one or the other, while most give both.
How reliable are Forex trade signals?
It would be great to be able to say that Forex trade signals are a totally reliable way to make decisions – and some less scrupulous providers might try to persuade you that they are.
But in a comparatively volatile and fast-changing market like currency pairs, there are no solid guarantees.
It is important to choose the right forex trading platforms for your trade signals. Online trading provider, offering to trade with Forex and CFDs, indices, precious metals, and energy. They will give you indications of whether it might be the right time to enter or exit the market. The more experienced you are personally as a speculator will also enable you to add some context of your own.
It’s this combination of signal and personal knowledge and feel for the market that will make it useful to follow signals while also being selective about which ones to act upon.
Some considerations
On balance, then, there are plenty of elements to recommend the judicious use of Forex trading signals.
One of the most important of these is the fact that it will save a great deal of time that otherwise might have to be spent studying the markets. It can free you from many hours of poring over charts and trying to analyze previous patterns, not to mention keeping up with the global events that can have such huge effects on currency values.
An extension of this is that not only can it help to maximize your profit-making potential, it will also help to minimize risk. This can either be from advising against making certain trades or exiting positions that may be set to lose their value.
It’s by regarding trade signals as a two-edged sword that you can probably get the best value from them.
Before starting to use them wholeheartedly it is also probably a good idea to hold back for a little while. This will give you a chance to identify the sources of signals who look to be making the right calls most of the time – and to ignore the ones that aren’t.
As in all kinds of trading and investment within business, there is also always going to be an element of luck to consider. But by following the right signals you might even be able to make fortune go your way just a little more often as you trade.
