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What are Forex Trading signals, and How are They Generated?

POSTED ON JANUARY 08 2024

What are Forex Trading signals, and How are They Generated? 

What are forex trading signals?

Forex trading signals are trading suggestions formulated by professional traders or market analysts. They generate the same using fundamental analysis, technical analysis, or a combination of both. Once the signals are ready, they are transmitted to traders through SMS, emails, other DM apps. 

The objective of a forex trading signal is to tell you when to buy or sell a currency pair. Trading signals are blindly followed by novice traders who don’t possess either the skills or time to reach on conclusions on their own. Trading signals are available for free, paid, or can be generated by the traders themselves. 

Types of forex trading signals

Forex trading signals can be generally categorised into two main types: 

  1. Manual signals: Manual signals are created by human traders or analysts. Experts use their knowledge and experience on the forex trading terrain, and figure out trading opportunities through meticulous technical analyses and analysing market conditions. In manual signals, human judgment and experience play a crucial role, often making it a more reliable type among the two.
  2. Automated signals: Automated signals are generated by software systems. Through the rules set by predefined variables, software can easily analyse bulk amount of historic market data to reach conclusions on future price movements. Normally, human traders or analysts won’t be able to analyse too much of data and identify patterns as easily as machines. Hence, automated signals will be more efficient and quick in real time.

Benefits and applications of forex trading signals

There are several applications and benefits in using forex trading signals: 

  • Time-saving: Most people who step into the world of trading consider it as a part-time income opportunity. They may have other day-time jobs, and prefer to spend time with their families upon reaching home. Here, they won’t get enough time to do detailed technical analysis and place trades accordingly. Instead, depending on a forex trading signal could save a lot of time and effort from their side.
  • Learning: Traders can learn from the signals by thoroughly going through them. Many signal providers give detailed reasons and analysis on why you should buy or sell at a particular time. This gives the common traders a chance to get a glimpse of how experienced traders make trading decisions. After a few repetitions, they can find patterns from their signals and develop the habit of quickly analysing various factors and arriving at trading decisions themselves.
  • Profits: The ultimate aim of a trader to rely upon forex signal providers is to make profits from the forex market. Though generating profit each and every time is impossible, a good percentage of the forex trading signals are supposed to generate profits for you, if you execute them at the right time. 
  • Evaluate your own analysis: You can use forex trading signals to check the accuracy of your own analyses. Each time you do your own analysis and check with the corresponding trading signal, you can find out how much percentage right you are. You can also do both trades and figure out whether yours or the signal proved to be more profitable. This constant analysis and comparison can make you an expert in a few months.
  • Risk management: Forex trading signals are not limited to profit-making, but helps in avoiding risks either, Just like knowing the right entry points, learning the right exit points could save you from suffering losses either. Protecting your capital is one of the most important things when it comes to trading.

Choosing a reliable forex signals provider

You should be careful upon choosing a forex signals provider. Get recommendations from reliable sources or display the audacity to try trial-and-error. These are a few factors to consider while choosing your forex signals provider:

  • Track record: it’s always the track record that speaks high volumes than promises. Choose a forex signals provider with a great track record of profitability, because in the end it’s profits that you should aim at. Ask fellow traders for recommendations and read online reviews before jumping into a random provider.
  • Transparency and detailing: the provider should display transparency in revealing the analytical methods they used to arrive at the trading suggestions. If the methodology and tools used are not detailed, the suggestions can be viewed as a bit shady, often generated randomly without any substantial analysis.
  • Support: Sometimes, you may have doubts on a piece of suggestion you received. In that case, the signal provider should have a customer support system to clarify your doubts and provide you with more information.

You have to keep in mind that no forex signals provider is perfect. Use your own logic and add stop-losses while placing trades to avoid risks. 

For novice and experienced traders alike, forex trading signals can be a powerful tool with profit-generating qualities. By choosing a reliable signals provider, you can also reap the benefits. But, never blindly follow anyone’s suggestion, unless backed by your own research too. Use risk management tools like stop-losses to avoid unwanted losses which may occur from blindly following the suggestions given by the signals provider. This keeps you safe even if the provider happens to be wrong. 

Also, do not over-trade no matter how good the deals provided by your signals trader seem to be. As mentioned before, mistakes could happen, and when it does happen, you don’t want to lose a big chunk of your capital by over-trading. TIme by time, you will be able to figure out high-quality signals from low-quality signals, and choose your trades wisely.

It’s also recommended to learn technical analysis by yourself, starting with tools like simple moving averages and stochastic oscillators. Becoming an expert yourself can always trump depending on others for the right trades. 

If you are new to trading or an experienced trader, Seven Capitals is your go-to place for Forex trading. With our advanced MetaTrader 5 trading platform, you can get access to hundreds of tools to use in real-time to get your technical analysis right. Also, we provide round the clock customer support and access to trading other assets like stocks, indices, gold, commodities, and crypto. Join Seven Capitals today to enjoy the full benefits. 

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