The Inconvenient Truths About Forex Trading Signals

Forex Trading Signals are services or software that gives you clear indications on when to buy or sell a specific currency pair. These signals are usually generated in real time and tell you the price and the direction of the trade.

Forex Signals can be generated by automated trading systems (Metatrader Expert Advisors commonly known as Forex Robots) or by a human trader or an analyst that manually scans the Forex market and sends the Forex signals to his subscribers.

Since the Forex market is open 24 hours a day from Monday to Friday, it’s crucial that the Forex signals are sent in real-time in order for the subscribers to take advantage of the opportunity before the currency pair moves.

Due to this need, the signals are usually displayed automatically on your computer screen (If you’re using a Forex Robot), or they’re sent to you by email, SMS, or even, sometimes, by twitter.

When you’re using an Expert Advisor the system can not only give you the signals in real time as it can trade for you automatically. While this appears to be great on paper, in real life a trading robot takes your decision and filtering out of the equation, and with that the risks increase since the Forex robot can’t adapt to a change in the market or read and understand news, and trade accordingly.

A software, no matter how advanced it is, can’t actually “Think”. It simply acts accordingly with the rules it has, with no emotions, taking decisions quickly, and trade. This same software can’t really interpret abnormal situations (like a surge in volatility or a specific news releases) and as a result it can’t adapt to a different kind of market or protect your money during drastic market conditions.

A software performs when the conditions are exactly as it was programmed with. You change the inputs or conditions and the software don’t know what to do. A trader can learn from his mistakes and adapt to changes, a Forex Robot can’t. That’s one big reason why so many Forex robots disappoint over the long term.

Forex signals sent from twitter are rare but due to the popularity and the speed of the service, some companies are now sending their Forex signals using this delivery method.

There are Different Types of Forex trading signals services:

Real time Forex signals generated by a software on your computer (Forex Robot) – The Forex robot (or Forex expert advisor) is simply a programmed trading system, that uses technical analysis to scan the market and to trade automatically.

The complexity of the trading system used in a Forex EA ranges from extremely simple 1 indicator trading systems, to advanced systems that use multiple, and in some cases, exotic trading indicators.

While Forex robots can go one step ahead and trade for you instead of just generating the forex signals, it’s necessary to add that no matter how complex or simple is the robot, they tend to fail in the long-term when there’s no human interaction. Without upgrades or without a real human filtering the signals, the performance on the long-term tends to be disappointing for most traders. The market is always changing and unless the system is updated to work on the new market conditions, it will stop working. There’s no such thing as an automatic system that automatically adapts to any kind of market. Traders can learn and adapt, Forex Expert Advisors can’t.

Signals generated by a Forex trader or analysts that scans the market manually and sends you the signals in real-time – In this type of forex signals, the signals are at least filtered by a trader. In the long-term these kind of signals are more successful than the Forex robots signals, but it all depends on how good is the trader or analyst. Another advantage in this type of service is you can trade with these Forex signals in any Forex trading platform. That’s a nice advantage considering Forex robots only work on Metatrader.

Services that simply combine Forex signals provided by multiple services and send you all together – That’s a rare service. And while it looks terrific to get multiple signals services for just the price of one, often you get contradictory signals so it’s not really easy to evaluate and backtest this type of services.

The Monthly Price and the Hidden Price:
Forex signals services can be free or they can cost you an expensive membership plan of more than $100 a month. The free Forex signals usually require you to join a specific broker in order for the service to generate profits to their author(s). In those circumstances, you need to join a specific broker, and your fx signals provider will get a commission on the trades you make.

While it’s in their interest to generate you a profit so that you stay with them for a long time, the truth is they get their commission on each trade, so no matter if you make money or not, a percentage of the trading commissions goes to the person or company that is providing you the service.

Understand this before you jump in the first “Free” Forex signals service, because there’s not really a free professional service like this that won’t get something in return.

Currency Pairs used on most Trading Signals:

Usually, Forex signals services only trade in a couple of currency pairs (or even just one). The majors are the most common choice, and EUR/USD, GBP/USD, USD/JPY tends to be the most popular currency pairs in these services.

These currency pairs offer the volume and volatility needed. They have less spreads than the exotic currency pairs. All these advantages explain why you easily get a forex signal service on the EUR/USD, but you need to dig deep to get signals on the exotics.

One of the advantages of using a forex signals service is you can get trading ideas easily even if you’re not an experienced trader.

However, you shouldn’t trade blindly on any service recommendation. There’s no substitute for a solid knowledge about the market. So even if you use a Forex signals service, you should know how to trade Forex and how to analyze a chart.

What should be included in a good Forex signals service?

Education

To start, the service should give you buy (or short sell) signals, target price (or exit price) and a stop-loss. Some services won’t provide you with the stop-loss and exit price. It’s crucial to know the risk reward on each trade, so you should only consider services that show you the whole picture and how much risk you’re taking in each trade.

A good Forex signals service won’t simply tell you what to do. They justify their opinion by sending you analyzed trading charts or a description on their opinion and signal. It’s important to know you’re not simply getting signals from a black box system, and, if you know how to trade Forex, it allows you to evaluate the trading potential of each specific trading opportunity.

Another good feature offered by the best Forex signals providers is educational resources who usually explain the strategies used by the analyst in order to find good trading opportunities. These educational resources or Forex courses can be simple ebooks, PDF tutorials, video courses or even webinars.

The depth and length of these courses depend a lot on the service pricing and the analyst experience in this market. On the most professional services this educational resource can be a mentorship course with one on one coaching with the forex trading signals trader.

Some services go a step further and offer you account management services. These services usually work by letting your forex signals provider send the trading signals directly to your broker, and authorize your broker to trade on those opportunities. You should be particularly cautious about those “full automated” services. Don’t use that feature unless you know how good is the service and the risks you’re taking.

One of the most important features you should look for, is a free trial period or at least a money back guarantee. Most Forex signals services simply don’t work. If they don’t offer you the free trial or guarantee save your time and money. There’s a lot of services that will offer you a free opportunity to test their signals.

The last thing to look for in a Forex trading signals service is the past performance. Some services don’t disclose their past performance, and we both know why. Avoid those.

Some services show you past profits and losses. Try to find out if the performance is confirmed by any external service or source in order to find out if the forex signals service past performance is real or not.

Be suspicious if their performance is always positive. All traders have profits and losses. If a service only shows past profits and no losses, you can’t trust them.