A forex trading signal is an online service where a company conducts technical and fundamental analysis and sends its predictions to its subscribers.
The goal is to ensure that these subscribers will place these trades and benefit if the price moves as predicted. In this article, we will look at what these forex signals are and how to use them to day trade.
What is a forex trading signal?
Forex trading is a relatively big industry where only a small number of people succeed. Indeed, according to the law, forex brokers in Europe must disclose the failure rate of their customers on their website and other platforms. Most brokers we have looked at writing a failure rate of more than 80%.
Therefore, there are two main strategies that people without experience or those who have failed before to succeed.
First, they can use the copy trading strategy to use technology to follow other experienced traders. Most forex brokers like eToro and OctaFX offer these copy trading services. Using this model, the trader will pay a small commission for all successful trades that the trader opens.
Second, they can leverage the experience of an experienced trader who will regularly send them clues about potential moves. Most signal providers use encrypted chat platforms like Discord and Telegram to send their signals. Others have a subscriber-only portal where members can view the current and past signals.
In addition to making money from their trading accounts, these traders also charge their signal subscribers. And it is big business. For example, if a signal provider with 1,000 subscribers charges $30 per month, it means that they will make at least $30,000 per month or $360,000 per year.
Some signal providers conduct their analysis manually, while others use algorithms to do it. A popular provider of signals that most brokers offer is known as TradingCentral.
The idea of forex signals has been around for decades. In fact, there are signal providers in all asset classes like macro, stocks, and even commodities.
Types of signal providers
There are several types of signal providers. First, some companies send only trade setups to their customers. For example, they will tell you where to buy or sell a currency pair and where to add the stop-loss and take-profit.
Second, there are signal providers who send detailed signals. In this, they will have fundamental information such as news and economic data to watch. They will then do technical analysis and identify key support and resistance levels.
Third, signal companies can also be categorized based on the type of trading they are geared to.
Some companies offer signals for scalpers, while others offer data aimed at swing traders. Other companies offer details for position traders who buy or sell currencies and hold them for a few weeks or months. There are also hybrid firms that provide all types of signals.
Forex signal scams
Starting a forex signal company is a relatively easy process because all you need is a website. You don’t need office space, employees, and other costly items needed to start a business. Because of low barriers to entry and potential profits, the industry is full of scams.
In fact, many people have lost a fortune paying for these services. This is because, while many people understand the profit potential of forex trading, very few of them can trade well.
Fortunately, there are several strategies of detecting a signal scam, such as:
- Investigate the testimonials – Many signal companies have a list of testimonials. Do a reverse image search to see whether the image is of a real person or a stock image.
- Free trial – Only subscribe to a signal company that offers a free trial. If they don’t, it means that they are not confident with the service they offer.
- Read reviews – You should read reviews from other past users. Some of the most popular review websites are TrustPilot, Facebook, and BBB.
- Check Whois – Whois can show you more details of when a website was registered and by who.
How to use forex signals
Day traders of all levels can use signals. Experienced traders may want to use these signals for idea generation and validation. For example, if your analysis on the EUR/USD pair matches with what the signal company recommends, it can be a sign that you are right. On the other hand, new and inexperienced traders can use signals as their main trading strategies.
There are a few steps required when using signals in day trading. First, you need to find a good and reliable provider. Take note of the precautions mentioned above to avoid being caught up in a scam. You can use Google to find these companies.
Second, after you find a company, we recommend that you take the time to read more about their signals. In this, you should look at more details like how they work and how to implement them.
Third, you should take a free trial to see the performance of the signals. This trial period should last at least three weeks. All your trades at this stage should be implemented in a demo account.
Finally, if the signals perform well, you should now pay and start using them. As you do this, we recommend that you start with relatively small leverage and use small lot sizes. You can increase the two after trying and testing the signals for a few months.
Most importantly, you should always use a stop loss or a trailing stop loss to limit your losses.
Final thoughts
Forex trading signals are controversial. On the one hand, some professional traders have used them well for decades.
And on the other hand, some strongly believe that they are a scam. In our experience, we have found some quality signals that are run by genuine people.
Still, before you use them, we recommend that you follow the steps mentioned above. You should also strive to learn from these signals so that you can stop paying for them in the future.
