Understanding and Using Forex Signals for Profitable Trading
The foreign exchange (forex) market is one of the most liquid markets in the world. With trillions of dollars changing hands on a daily basis, it offers the opportunity to make large profits – if you know how and what to trade, that is.
This is much easier said than done, however, since spotting the right trading opportunities is not exactly a walk in the park. The challenge is in learning how to find these opportunities as it will be the key to efficient and profitable trading positions.
There are different tools available to help you achieve your trading goals, and these are mostly based on forex trading signals. Read on to learn everything about forex signals as well as important information on the most reputable forex brokers to work with.
Forex Trading Signals Explained
Forex trading is all about taking educated and profitable positions on the trading markets. Forex trading signals, or simply forex signals, are recommendations or suggestions upon which forex traders can base their decisions on when to put their money on a specific currency pair.
As a trader, you have to know what to invest in, why, and more importantly, when to take a position. Without being well-informed, you would be forced to trade blindly – without guidance, and in most cases, this leads to bad trading decisions. Forex trading signals are a vital part of every forex trading strategy.
Forex signals can also be considered as indicators of things or events that are currently happening or about to unfold on the forex market; and these offer money-making potentials if you know how to use them to your advantage.
You can find many kinds of signals based on different underlying factors like trends, times, and price movements, among others. To cite an example, a forex signal may be based on news of a national disaster, a significant political event, or any other news story that can influence the forex trading markets.
The most prevalent signals, however, are derived via technical analysis of the forex market, which can either be done on your own or with the help of a signal provider (may be automated or human.) You can find more details about various signal providers later in this post.
How Forex Signals Work
To better appreciate how a forex signal works, here is an example using the USD/EUR pair.
Assume that the exchange rate for the currency pair has been bearish for a given period of time. This means that the rate is on a downward trend. Now, signs of a price turnaround have become apparent. A bull market is typically an accurate indicator of a good time to make an investment.
This is also true for a market that has been bullish over time, but has begun to show signs that it is about to turn into a bear market where prices are on a downward trend.
Various Types of Forex Trading Signals
Forex signals can be grouped under two categories:
Signals you can spot on your own – As a trader, you can study the forex market and formulate an opinion on the direction you think the market will take. Finding signals yourself will require a good grasp of the workings of the market, as well as the different factors that affect currency pair prices. This is why finding signals is often done by skilled, veteran traders.
Signals provided by FX signal providers – Forex trading signal service providers may be a group of people, a single person, or a software program like an Expert Advisor (EA) or a forex robot. Signals from forex signal service providers may be free or paid. You can find a list of the different kinds of signal providers later in this post.
Bear in mind that there is no such thing as a 100% accurate trading signal or signal service provider. This simply means that even while using a reputable and experienced signal provider, there is still a risk of landing a bad trade or losing money. At the end of the day, you should still trust your instincts and bear the risks associated with forex trading.