Forex Signals: Do They Really Enhance Trading Profits?
With around $7 trillion in volume being processed on a daily basis, forex traders are not exactly short on opportunities to make money. Going long (buy) and short (sell) on the most popular currency pairs, like EUR/USD and GBP/USD, are just some of the trades they can carry out in the FX market. This is primarily down to built-in market features like high liquidity levels, and continuous open trading sessions from Monday morning to Friday night.
Hence, regardless of whether one resorts to self-trading or a reliance on forex managed account services, the primary challenge is to keep profit levels consistently in the green — no easy task considering the hundreds of seemingly unconnected factors that influence market movements. It is an incredible challenge for a small team of experts, let alone an individual, to keep track of all the fundamental metrics that have an impact on price fluctuations.
In a nutshell, the prerequisites of a consistently profitable trader in the FX market are competency in a variety of tasks, deep knowledge of a range of subjects, and an ample supply of free time. In view of such demands, it is no wonder that forex money management strategies from around the world have collectively embraced the concept of forex signals to make traders’ lives easier.
But what exactly is a forex signal? Let’s find out.
A System of Signals
A forex signal can be defined as an analysis or a piece of information on a currency pair used by a trader to help decide whether to buy or sell it at any point during trading hours. It usually consists of technical analysis, charting tools, updated economics data points, or current events. Various signals are usually packaged together to form a system of forex signals that combine to dictate a buy or sell decision. While some trading signal systems are available for free, others can be accessed for a monthly fee, and a limited few are developed for internal use by top forex fund managers.
The whole concept came about as a solution to the single biggest doubt that gnaws at the insides of every trader: identify an opening and exploit it before the window of opportunity closes. In order to tackle this, a trading signal serves to transform complex pieces of interrelated data points into a simple “buy” or “sell” recommendation that has to be carried out within a specific range of price and time. No matter whether a trader is about to dip their toes into the market for the first time or an old hand at it, a signal system can help turn their good forex money management plan into a great one.
But before we delve into how forex trading signals raise profits, it is vital to understand the various types of signals and how they compare against each other.
Category of Signals
Apart from whether forex trading signals are available for free or for a fee, they can also be categorised in the following ways.
1. Manual & Automated: This signal categorisation is based on the point of origin. Manual forex signals are said to be generated when a professional market observer or an experienced trader or a team at a forex fund management company compiles them. Conversely, trading signals fall under the automated category when a computer software, powered by algorithms that analyse market price fluctuations, produces them. Automated signals are presumed to perform better because they come without the additional weight of emotion that hampers many trades.
2. Entry & Exit: Another way to categorise signals is based on the type of detail they provide. For instance, certain forex signal providers restrict themselves to publishing market entry signals, recommendations on when to open a trade position, while others publish only market exit signals, recommendations on when to close an open trade position. This separation is mostly true for signals on financial assets over long periods of time. Intraday signals, however, almost always contain both entry and exit recommendations.
Now that the different categories of trading signals have been established, let’s assess how their usage has the potential to enhance a trader’s profit levels.
Signal Equals Profit
To begin with, the positive impact of forex signals on new traders cannot be underestimated. Without the benefits of managed forex trading to lean on, any newbie’s journey into the dynamic and volatile world of forex is liable to be quick and short. With the help of forex signals, however, new traders get a chance to learn how the market operates without burning a big hole in their pockets. In fact, by attempting to understand the logic behind any recommendation they receive, they can make steady profits even as the pace of their learning process accelerates. TradEmpire, for instance, is a leading forex signal provider that places additional features like interactive charts and analyses of an extensive list of currency pairs at a new trader’s disposal.
Secondly, another benefit that signals bestow upon traders is to allow them to experiment with different strategies. If they were to rely solely on their own skill or knowledge of the market, then the number of potential opportunities they can exploit with a certain degree of confidence would be akin to a drop in an ocean. But when equipped with different types of analyses and updated data that signals provide, traders can step out of their limited area of expertise — their comfort zone, so to speak — to tap top quality opportunities in all kinds of assets at any time.
Also, forex signals grant traders that most precious of all commodities: time. Although the FX market is open from Monday morning to Friday night and comes with significantly more potential money-making trades, most traders have professional and personal obligations to severely curtail their trading time — thereby limiting trading opportunities. If left to their own devices, even the best forex managed accounts can only take advantage of a fraction of the opportunities in any given week. But fortunately, by providing detailed information on a currency pair, trading signals blow those barriers apart and create enough time for traders to carry out only the most important task of all: execution of the trade.
This article has hopefully provided a strong understanding of forex trading signals for you to kick on from. A good forex signal provider will have an immediate and lasting impact on your profit levels, and you need not look any further than TradEmpire to fulfil all your needs.