Complete Guide to Forex Trading Signals

In recent years, more and more people are attracted to the forex market because of the potential for financial independence. While it’s true that forex trading offers opportunities for wealth creation, statistics show that a significant portion, specifically 90 percent, of retail forex traders do not achieve long-term success. Losses are a part of forex trading, just as they are in any form of investment. There is always a risk involved in trading, so the key is to manage losses effectively and focus on achieving higher profit rates.

Forex trading signals can be a great tool to help increase profit rates, especially for beginners. These messages are not a guarantee of profits though, they provide ideas on what position to take and when, helping enhance trading activities and expand profitability. To help you take full advantage of forex trading signals, this guide will explain everything you need to know about this tool.   

What Are Forex Signals?

A forex signal is a suggestion generated by an experienced trader or an automated system for entering a trade at a specific price and time. It serves to indicate potential trading opportunities for a particular currency pair. And it’s important to note that in such a volatile market like forex, signals last only for a short period of time. That means a signal can become useless if a trader gets it too late.

As forex signals are usually based on technical analysis, historical price action and news-based events, not only could they help increase traders’ success on the market, but they also provide insights into how traders are playing the market, enabling beginners to learn about forex trading more efficiently. Also, expert traders can combine signals with their own strategies to expand profitability scope.

Types of Forex Trading Signals

Forex trading signals can be categorized based on various factors, including generator, generation method, timeframe, trading style and fee structure. When choosing signals, it’s important to consider categories so as to align the signals with your trading strategies, time availability, and budgetary constraints as well.

- Generator

Generally, forex trading signals fall into one of two categories by generator - manual and automated signals.

Manual signals: recommendations on the currency pair to trade and the entry, stop-loss and take-profit price, generated by human analyst, typically experienced traders or market analysts. Benefits of using manual forex trading signals include that they will save you time and effort and help you learn from more experienced traders and make more informed trading decisions. However, manual signals can be expensive and are not always accurate.

Automated signals: recommendations on when to enter or exit a forex trade, generated by an automated trading system programmed to follow certain trading rules. Not subject to human emotion, they can be more accurate than manual signals. In addition to saving you time and effort, they can also give you an edge in the market, as they can execute trades much faster than a human trader. There are also drawbacks of using automated signals. They can also be expensive and are not always accurate. Besides, it can be difficult to troubleshoot problems for you may not be able to understand how the trading systems work.

- Generation method

In terms of generation method, forex trading signals are categorized into the following three types.

Technical analysis signals are generated by using technical indicators, chart patterns, and other technical analysis tools to identify potential trading opportunities.

Fundamental analysis signals are based on fundamental factors such as economic news, geopolitical events, and macroeconomic data that can impact currency prices.

Combination signals combine both technical and fundamental analysis to recommend trading opportunities.

- Timeframe

In line with the timeframes of forex trading, signals can be categorized into short-, medium-, and long-term forex signals.

Short-term signals are generated for short-term trades, usually with a focus on intraday or daily timeframes.

Medium-term signals are generated for medium-term trades, typically with a focus on H4 and daily timeframes.

Long-term signals are generated for long-term trades that can last for several days, weeks, or even months.

- Trading style

There are three types of forex signals when categorized by trading style, including trend-following signals, counter-trend signals and range-bound signals.

Trend-following signals aim to identify and follow prevailing market trends and suggest trading opportunities in the direction of trend.

Counter-trend signals aim to identify potential reversals or corrections in the market and suggest trading opportunities against the prevailing trend.

Range-bound signals aim to identify trading opportunities within horizontal price ranges or consolidations.

- Fee structure

Simply put, based on fee structure, there are free signals, paid signals which come with a subscription fee or a one-time payment, and percentage of profits signals which require a percentage of the profits made from the trades executed based on the signals.

Who Provides Forex Signals?

There are several providers of forex signals available in the market, including forex brokers, signal service companies, signal groups, automated trading systems and individual traders and analysts.

- Forex brokers

Forex brokers usually use trading signals as a way to attract new clients and increase trading volumes. By offering this additional tool that can help clients improve trading performance, brokers can also add more value to their service and differentiate themselves from their competitors. It’s convenient and cost-effective to use trading signals from a broker. However, it’s important to note that not all forex brokers provide signals, and some brokers may be incentivized to provide trading signals that lead to more trading activity, even if those signals are not the best for the client. Therefore, please do choose a broker that has a good reputation and is transparent about its trading signal policies.

- Signal service companies and groups

Signal service companies and groups typically have a team of experienced traders who develop the signals. This means the signals are more likely to be accurate. Also, they may offer access to new forex trading strategies that you may not have considered otherwise. Some signal service companies even offer education and mentoring programs to help traders learn more about the market and improve your trading skills. However, the monthly or annual subscription fee charged by some companies or groups can be a significant expense for some traders.

- Automated trading systems

There are many automated trading systems providing forex trading signals, such as ZuluTrade, EAs.com, Tradestation, NinjaTrader, MetaTrader and more. In addition to track record, risk appetite, frequency of signals, and cost, it’s also important to consider the ease of use when choosing an automated trading system.

- Individual traders and analysts

Getting signals from individual forex traders and analysts can be a good option for traders who are looking for personalized advice, transparency, and flexibility. Furthermore, individual signal providers usually charge less than automated trading systems and service companies. But it’s important to do your own research and choose an experienced trader or analyst that you trust.

How to Use Forex Signals

Although using signals is a good option for novice traders to start forex trading, it should be noted that risk and losses are always involved, so here are some tips on how to use forex signals more effectively.

First of all, choose a reputable signal provider. There are many different forex signal providers out there. It’s important to look for a signal provider with a proven track record of profitability and a high level of support. Also, make sure that the signal provider’s risk appetite matches your own. And don’t just take the signal provider’s word for it. Read reviews online and do some research to make sure they are credible.

Secondly, understand the signal provider’s trading strategy and do your own research before entering any trade. This will help you understand why they are making the signals that they are making, and make sure that the signal is a good fit for your trading style.

Thirdly, use a demo account to test out the signals and start trading with a small account.

Fourthly, use stop losses and limit orders for risk management, and be patient, not expecting to make money on every trade.

Lastly, monitor the market yourself. Even if you are using a trading signal, it’s still important to monitor the market yourself. This will help you identify any potential risks or problems with the signal.

Are Forex Signals Reliable?

Signals can help you learn the market and reduce your risk before you build your own profitable forex trading strategies. However, as noted above, forex trading signals are not always accurate, and no signal provider is perfect, as the forex market is highly volatile and subject to various factors. Therefore, it can be reliable if you use a credible signal provider and take each signal rightly. It’s important not to blindly follow any signal.