Over the past years, the use of signals has been gaining increasing popularity among Forex traders. This does not come as a surprise because those signals promise Forex traders substantial returns on their investments.
Of course, that is a significant promise because most Forex market participants lose. It is estimated that over 90% of them are not profitable and often end up quitting for good.
The good news, then, is that signals, when rightly applied, can help those frustrated traders better their performances. But they must, indeed, be accurately applied. They must know how to correctly use those signals to be able to benefit tremendously from this interestingly exciting financial market.
Forex Signals: What are They?
Forex signals are recommendations to Forex traders to take specific high-probability trades. Usually, they are circulated online and are communicated to their subscribers via different means such as:
- Social media, e.g., Telegram, Instagram, Facebook, and Twitter.
Forex signals aim to provide high-quality information about the Forex market, which, if rightly harnessed, is expected to lead to the identification of sound trading opportunities.
Evident from the improved performances of many erstwhile struggling Forex traders who went on to adopt the use of signals, it is apparent that the application of Forex signals has continued to achieve for many the objective on which it is promoted.
However, still, many traders have not been able to exploit the full potential of Forex signals. A reason for this has been identified to be the poor understanding of how to use them.
Therefore, with this guide, we seek to solve that problem for good and all. However, first, before you learn to use Forex signals, you should have a basic understanding of them.
How Forex Signals are Generated
Forex signals can be broadly categorised into two: manual and automated. Manual Forex signals, as the name suggests, are those generated by high-performing human analysts.
Usually, those analysts work with leading online financial news platforms, dedicated signal providing companies and major brokerage firms. These human analysts make their signals available to their subscribers via manual channels, usually with no provision for automatic execution.
On the other hand, automated Forex signals are generated by robots, through the use of high-power algorithms, that identify opportunities in the market. Interestingly, contrary to those in the manual group, signals in this category have the advantage of instantaneous execution.
Hence, automated signals, also known as algorithmic signals, are executed directly on the subscriber’s trading platform at a speed and frequency impossible for any human. Correspondingly, the user does not have to analyse or place any trade himself as all the conditions for timing, price, and quantity have been programmed into the system itself.
Even though still not any close to their algorithmic counterparts in terms of popularity, manual signals are also becoming increasingly advantageous in this regard as traders can now directly copy the trades being taken by highly successful traders to reap profits similar to theirs.
Overall, automated signals have the unique advantage of helping traders eliminate their emotions in the conduct of their trading activities.
Fundamental and Technical Signals
Another basis for classifying Forex signals is the factors considered and the methods used in arriving at them. Based on those two criteria, Forex signals can also be grouped into:
- Fundamental, and
- Technical signals
Fundamental Signals are arrived at using fundamental factors such as the inflation, unemployment rate, and manufacturing index of nations which substantially impact the values of their currencies. Signals based on news and central banks’ policies which affect the forces of the supply and demand of currencies are an excellent example of fundamental signals.
On the other hand, analysts use a wide range of tools such as indicators, techniques, and strategies to generate technical signals. All signals formulated from price action, for example, fall into this group.
However, most signals are based on the combination of both. That is, they are based both on fundamental factors such as market news and technical elements such as the analysis of charts.
Using Forex Signals
Having grasped the very underlying principles of Forex signals, you should now understand how to use them. First, it is pertinent that you familiarise yourself with the conventional components of Forex signals which are:
- Instrument: Which particular currency pair or instrument is the signal about? EUR/USD, Crude Oil, or Gold?
- Status: Is the signal active, meaning that you can act on it straight away? Or is it now closed and so no longer valid?
- Action: Which specific action are you to take on it? Buy or sell? Conventionally, Buy is represented with green while sell is indicated with red.
- Price: An essential component of Forex signals is price. The prices that they must always include in them are the entry, take profit (TP), and stop-loss prices.
The entry price is the price at which you are to take the specified action on the signal. Take profit is the price at which you exit, while stop loss exists to protect your position against loss when the market moves opposite your anticipated direction.
Using Forex Signals
Using Forex signals does not have to be complicated. Most of them come with precise details that should make for smooth execution. As long as you are familiar with those components, you will be able to use those signals yourself easily.
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