Tue. Nov 24th, 2020

What Is A Forex Trading Signal And Is It Worth It To Get One?

Imagine trading Forex profitably without having to think, without having to analyze.

You only pay a fee every month, copy trades, and make lots and lots of money.

It sounds like a fantasy, doesn't it?

At least that's the promise of Forex signals. 

But what is exactly is a Forex trading signal? 

Could it help you in trading 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 signals.

Let's begin. 

What are FX trading signals?


Forex signals present an easier way for someone 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 from either a combination of trading algorithms or as suggested by a professional analyst.

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 offered by Forex signals providers, but it can come as a complimentary feature of some 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.

xm trade signals

Here is an example of a FREE trading signals offered by a broker.

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 to shell out $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 concept of just copying trades an excellent 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 your'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. 

forex signals claimed profits

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 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, meaning the winner takes it all.

So, the truth is the profitability of signals are somewhat hazy 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?


Trading Guide

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.

Diversifier

Another use of trade recommendations is as a strategy diversifier.

When you copy at least two separate signal providers, and at the same time, trade based on your analysis, you have a more diversified trading approach.

In doing so, you have unhinged yourself from following one strategy and dispersed your bets well-roundedly to two other methods.

But one thing you have to note is that 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.

AUD and NZD correlation

Gain Experience

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. 

The Verdict


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.


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