Forex trading signal systems are used by Forex traders all over the world to aid them in making critical decisions about their trades. They are one of the most important tools a forex trader has and almost all traders choose to use them in one way or another. There are many types of forex signals systems, some are offered for free while others for a fee but take in mind that a trustworthy service should include information about take profit and stop loss configurations.
Consider testing your skills on a demo account before purchasing access to a signals system so as not to throw your money away.
The typical routine is to receive the trading signals directly to your e-mail or to your phone by a text message. This routine improves your ability to track your trades and ensures you don’t miss buying/selling opportunities because you didn’t notice them or because you were too late.
Signal systems have become very popular among forex traders and yet we encourage you to verify the trustworthiness of the system before making an expensive commitment. As mentioned above, using a free signals system with a demo account is a great way to test your ability to earn money before risking any real money out of your pocket. Once you feel comfortable that you can earn money with your demo account feel free to move on to a real account and make some real money.
Keep in mind that signal systems are not compatible with all time frames. Scalping is a method that will not work with signals as the signal will already have closed by the time you see it. When working with a signals system consider trades with longer time frames as that is where they are most useful.
So how does the FX signals system actually work?
Every Forex signals system is unique and relies on a different analysis of the market but overall there are two main methods which guide the market experts who produce the signals.
The first is a technical analysis of the market including all the past information about the price and trend that is available. The second is based on current events and the analysis of how they might affect the price action over short and long periods of time.
Some signal systems are based on an automated computer analysis of the market. An experienced trader teaches the automated system to react to different events and the system produces the signals on its own. A major upside of this kind of system is that it excludes the negative effects of human psychology which might affect a human’s judgment and cause him to make a wrong decision. The downside is, of course, the loss of actual human judgment and the inflexibility of a computer system.
The currency pairs which provide the greatest challenge for analysts are GBP/USD, USD/CHF, USD/JPY and EUR/USD. All signal systems have flaws and none are accurate 100% of the time. Use these signals as a tool to better your trading system but do not rely on them fully as they are only one piece in an intricate basket of tools and strategies which make up a successful trader’s trading toolkit.
Types of services
Services provided fall into four categories:
1- Unpaid/free signals
2- Paid signals from one provider whether by personal analysis or algorithmic analysis
3- Paid signals aggregated from multiple signal sources or 'systems'
4- Signals supplied by trading software located on the trader's computer, also known as a forex robot or EA (Expert Advisor)
The main services offered by forex signal suppliers are:
- Exact or approximate entry, exit and stop loss figures for trades on one or more currency pairs
- Supporting graphs and/or analysis for the signals
- A trading history showing the number of pips profit/loss per month and/or the risk/reward ratio and actual trades. Sometimes (especially in the case of forex robots) this may be shown as back-tested results
- One-on-one coaching, or additional interaction with the signal provider such as comments, forum, etc.
- Account management whereby a subscriber's account can be traded by the signal provider
- Educational resources either via the internet or phone
- A trial period for a lesser price
Choosing a reliable forex signals provider
The forex market attracts more and more people around the world - unfortunately, both honest and not. Let us discuss what the most important features of a forex signals provider service are. There are too many alerts providers on the market nowadays, and it's very important to understand what criteria you should use in order to not lose all your money.
Forex signals – myth or reality?
The very first question one might ask – why anyone would offer (either free of charge or for any remuneration) profitable forex signals? The most obvious answer is – these signals are not actually profitable. However, this is not the case for all companies and traders working on the forex market. This can be done as an advertising opportunity for other services, or signals selling might be itself a very good business. Imagine having 1,000 clients each with a $50 monthly subscription fee; it equates to $50,000 in monthly income. It's more than enough for anyone to get interested in such a business.
Remember! Forex trading is not a casino; you can't make $10,000 from a $100 deposit; you will not be making 100% a month every month without any losses. If you see anything like that – this is almost definitely a scam.
Legal status :
Now that we understand this, we have to search for good companies and/or individuals. By the way, should it be a company or an individual? Is it possible for 1 person to run such a business? How about vacations, illness, time, etc? I'm sure it's almost impossible for 1 trader to do all the necessary things and do it for many years. We can accept as a general rule the following idea – a good forex signals provider is a company. One more thing about companies – to run a company you have to open a bank account, provide all the information about the owners, directors, etc. It means the structure is transparent unless the company is registered off shore. The conclusion here is the following – any good forex signals provider must be a company, and this company must be registered within any regulated country (e.g. UK, EU, US). If we take into consideration this idea, a great number of forex signals provider won't pass this test, and we are ready to move forward in the search for a reliable forex signals provider.
Remember! All reliable and honest providers will never promise you a 100% win, no loss trading, etc. More than that, with a reliable provider, you will definitely find a risk disclosure, non-waiver document describing all the arising risks. This is part of the provider's responsibility.
Results, demo and free trial :
The most important question about any forex signals is how profitable they actually are. Any trading must have past trade results (performance) that are openly published on the company's website. Anyone must have free access to past performance. Every trade detailed statistic must include open and close prices, dates and trading results. If you can't find anything like that, most likely you are visiting a cheating service. Once you have found the results, you have to check whether it was real results or fake results. Anyone can write anything anywhere. Any reliable provider must offer a free or a small fee trial / demo to test and verify their services. If you can't get it, most likely the services are not transparent, honest and reliable. Try not to use such services. If there is nothing to hide, anyone should be able to get access.
Remember! If you can't get a demo / trial (for free or for a small cost) – beware of signing up to services with such a provider. If anyone is confident in what he is doing, he will definitely offer you a demo / trial first. Imagine buying any perfume without trying it.
Forex signals execution (automated trading)
Finally, you have done a great deal of research of signals providers and found several complying with the above mentioned requirements. Even if the signals are profitable there is always an execution issue with any forex signal. Evidently you have 2 options: manual and automated execution of signals. Manual execution can be very time consuming; it may be required that you have knowledge, skills, etc. If this is not a problem for you at all, you will be happy with email and SMS alerts only (both are required to be presented as means of signals delivery). However, most traders (even full-time and professional) will prefer automated forex signals. If you use an automated services, all signals will be executed correctly every time since it is done on the provider's side, and you will receive the same results. One of the most popular options for automation of forex trading is the Metatrader platform automation. Some are realised in the way of autotraders (execution signals only), EA (expert advisors – built in strategies) and trade copying from another account. Autotrader execution is the most efficient and the most reliable way for executing any forex signals. Forex signals are created by traders and then are published somewhere; Autotrader takes trade details from that place and executes it exactly as if it was created by a trader. Everything is done the same way you would have done it. EA – is a trading robot which has formulas and trading conditions built within it. Markets are always changing, and it's impossible to create a mechanical trading system that will work forever, i.e. you will have to renew / upgrade your EA on a regular basis even if it is profitable now. The last option is trade copying from another account – which involves too many possible errors due to Internet connections, different brokers, etc. Any automation requires permanent Internet and power availability. The only way to solve this problem is to have your own server (and the minimum you can get here is a VPS – Virtual Private Server). Many brokers do offer these services for free; others do not. If you try to rent your own server, it will cost you at least $70-100 a month. More and more forex signals providers offer such services either totally for free or for a minimum payment.
Remember! Good past trading results are not enough for you to make your own profits. To be able to have all trades successfully executed (and hence to have gains made), consider forex signals providers with automated forex signals execution services. Free or cheap VPS are also very important as offered services.
Offered services :
The forex market offers a great number of currency pairs. To open a trade, you need to devote capital. It's like sending a boat to fishing. If you have a small boat, you can't take on a big catch. The same applies to your trading. If you have a small deposit, you won't be able to open many trades for different currencies at the same time. That is why it's very important to understand the trading style of a forex signals provider and the relative profits that will be generated. Many providers offer dozens of currency pairs stating hundreds of pips a month, but the relative amount of profit for each currency is very small, e.g. +800 pips for 12 currency pairs is less than 70 pips for each currency. It is more preferably to have a forex signals provider with detailed statistics for each currency pair, so you can see how much profit you will get in absolute terms (the cash) and in relative values (in %). Most currency pairs are connected with each other, and if you trade 3-7 currency pairs, you can diversify your risks; however, trading with 30 currency pairs is most likely to just waste time. Try looking for 2-8 currency pairs with detailed statistics available for each including the average profit a month, the maximum drawdown, etc.
Money and risk management is a very important part in any kind of trading including trading on the forex market. Providers of signals must be professionals with money and risk management knowledge. The same signals with different risk management approaches may lead to controversial results. Before you subscribe to any forex signals, inquire whether risk management information will be provided to you and whether this risk management suits your deposit level, trading style, etc.
Remember! Too many currency pairs are not efficient for trading. Consider choosing forex signals with detailed results for each currency pair. Money and risk management advice is an obligatory option.
Subscribing options :
The last thing you should be concerned about is the subscription options. It is obvious and reasonable to pay for net profits. Why pay for services which do not make you money even if the provider publishes good results on their website? Guaranteed profits or pay for net profits options are very popular among forex traders and forex signals provider customers. You just pay for net results on your broker account. If you have two similar providers, but one offers pay for a net profits options and the other one does not – consider subscribing to the one that provides it, even if you are going to subscribe to a monthly subscription. A variety of subscription options gives a provider more credibility. If the provider has a pay for results option, it means that this provider is confident in the services they provide to their customers.
Remember!Choose a forex signals provider with guaranteed profits and a pay for net profit subscription option even if you are subscribing to a limited period of use.
Social connections :
If you can't find any information about the company and the services you are going to use, it does not mean anything at all. There are thousands of great companies, you have never heard of. Unfortunately, nowadays you can't trust anyone but yourself or your close friends and relatives. Most forums, review websites and ratings do not reflect the obvious picture of anything (too many competitors and not so honest customers, etc.) However, if you can't find a single piece of positive feedback, it may be not a good sign.
Remember! You are the only person you can trust; do not allow competitors to blacken someone's reputation. Try the services yourself on a demo account first. However, if you can't find a single positive message about a company – this is not a good sign.
Be aware of!
The final part of this article is devoted to unwanted features of a forex signals provider. If you find any of the following features, try finding another provider. Each feature is accompanied by reasons and possible consequences.
a.Promises of huge profits every month
If you have found a provider which promises a higher monthly income than an average provider does (approximately 20%-30% a month), it's more likely you have found a cheating provider. Though there could be months with profits above 100%; it's absolutely impossible to have every month's profits above this figure. Just do not waste your time and money – it is a scam.
b.No loss trading guarantees
Not a single trader in the world can trade without losses from time to time, like it's impossible not to have a drop of a rain for the whole summer. Any professional provider which is offering reliable and honest forex signals will show both profit and loss trades. No loss results seem more like a fake rather than being a trader's paradise.
c.Forex brokers' recommendations
There are basically two ways of making profits from providing forex signals: subscription fees and brokers' rebates (commissions paid by brokers). The first option is obvious and normal. However, the second option is very dangerous for forex signals users. If your forex signals broker is looking for broker's commissions only, it means you will be making dozens of trades just for trading. The results of your trading do not correlate with the profits a provider receives. It does not matter for a provider, how profitable your trading is. The only thing which matters to the provider of forex signals in this situation is the number of trades made. You have to be driven by the following rule while choosing the right provider – you came to forex to make profits not to trade. If you see messages like these: "open an account with broker X and get our signals for free" or "deposit $100 to broker X, and you will get $100 for our services" – you may be sure that this signals provider is either affiliated with the mentioned broker or is even owned by it. The main purpose of this provider is to attract clients to that broker.