Imagine trading Forex profitably without having to think, let alone analyze.
You only pay a fee every month, copy some trades, and make lots and lots of money.
It sounds like a fantasy, doesn't it?
At least that's what Forex signals promise.
But what is exactly is a Forex trading signal?
Could it help you trade currencies?
That is what we'll try to answer in this article, so stick around, and we'll explain everything that you need to know about them.
What are FX trading signals?
Forex signals are often presented as an easier way for anyone with no trading experience to gain exposure in the Forex market.
Essentially, signals are trading recommendations with specific entry and exit points that are generated by a professional analyst or trading algorithms.
For investors, it's a sort of copy and paste method for trading currencies.
How does it work?
Signals are often a subscription-based service from certain companies specializing in such products, but it can come as a complimentary feature of certain Forex brokers.
Once subscribed, you will have access to a wide array of recommendations covering currency pairs, commodities, and even precious metals.
You will often find an Entry Price, a Stop-Loss level, and a Take Profit target.
And all you have to do is to copy the parameters on your trading platform, and you're all set.
Premium signals will have more details like the inclusion of a chart to visualize where your entry and exit would be, the strategy used, and sometimes even the rationale for trade.
There could be multiple levels of profit targets as well, which let you have the option to hold parts of your trade or trail your stop loss.
Human Signals vs. Robot Signals
It's also worth noting that if you are presented with many trading suggestions, it could mean that it is generated by an automated trading system or trading robot.
A select few pairs are often human-generated.
And the answer to which is better between the two will depend on a few factors.
For example, robot-generated signals should be tweaked from time to time to adapt to the current market condition.
If a robot signal employs a strategy that is profitable in a range-bound environment, it may not work too well when the market is trending.
And when it comes to the trade suggestions of professional analysts, the thing you should examine is their track record and some of the reviews of other traders who used their service before.
One place to look for reviews is this website.
How much is the usual subscription fee for these trading signals?
Usually, to receive trade recommendations, you would have pay $100 per month, but as mentioned, certain brokers do offer them to you for free when you open a trading account with them.
Are Forex signals profitable?
Still, one of the biggest issues about Forex signals is its efficacy.
Is the simple concept of copying trades truly a way to create a dependable income source?
After all, these are primarily the bulk of the spam messages on Forex Facebook groups.
Therefore, the trading signal business could be flourishing that you may wonder if this is the holy grail you're looking for.
In fact, some providers who offer their service on the messaging app telegram claim to make 1,500 to 1,800 pips per week.
Can you imagine that?
If you use a standard lot on a dollar-denominated account, you can make $15,000 to $18,000 per week with that kind of result.
If you leverage your trade even more to about ten standard lots, that is equivalent to $150,000 to $180,000 per week.
But the real question is, how come the signal providers don't do it themselves?
To put it bluntly, what do they need you for if their strategy works so well?
Because if you have a formula that truly makes money (one that you have blown more than five accounts to perfect), would you risk making your secret known to everyone?
And by everyone that includes the big players who will now know what you and other retail traders plan to do.
Remember, Forex is a zero-sum game, or, in other words, the winner takes it all.
So, the truth is the profitability of signals are somewhat unclear because it depends on the strategy's performance, the provider, and the verifiable results.
Signals can also be deceiving because you may catch it performing well but only for a short period of time.
This is because no strategy (especially if it's automated) is immune to mistakes.
Sooner or later, when unadjusted, a strategy may no longer be applicable in the current market condition and pile up loss after loss after loss.
What are the optimum ways to use trading signals?
A smart way to use signals is to use it only as a guide.
This means that you have to do your analysis, and the signals would only be a point of reference.
The signals would offer you objectivity in your analysis.
You could be positioned to long a currency pair, but the signals you subscribed to are pointing in the opposite direction.
This would give you a different perspective and would allow you to take extra measures to manage your risk.
Another use of trade recommendations is as a strategy diversifier.
When you copy at least two separate signal providers, and at the same time, also trade based on your own analysis, you have a more diversified trading approach.
In doing so, you have unhinged yourself from being a devotee of a single strategy and dispersed your bets well-roundedly to two other methods.
Still, you should follow trade suggestions for pairs that are not correlated, especially if the timeframe goes beyond the daily chart.
For example, one trade is to buy AUD/USD, and the other one is to sell NZD/USD.
The two currency pairs are known to be identical in terms of movement, and taking opposing positions on both of them would mean the loss in one pair would offset the gains of the other.
Finally, signals can also work as a way to gain experience in trading.
Placing orders and seeing your trade vacillate from profit to loss or loss to profit allows you to experience what it's like to trade currencies.
You will also get to master your trading platform since you are manually placing trades yourself.
For $100 per month, signals may be a bit pricy for someone starting out.
If the whole point is just to get some exposure in the Forex market, then a micro account would be a much better option.
Unless the signal provider is consistently net positive and the gains from their strategy can make up for the subscription cost, then it may be worth the price.
However, what's hard to figure out is the true trading history of some providers, which is why you have to be extra cautious in selecting the Forex signals you will subscribe to.