When To Use Forex Trading Signals
Maybe the first thing we should get out the way is what is a ‘forex trading signal’? Those of you who are drivers or who may have studied their Highway Code will remember that this is that thing that’s at the side of the road that’s given to alert you to some kind of upcoming danger or event – Yes, yes, most of them are not on our roads in Zimbabwe, but you get the point. In forex trading a signal is no different. This is when someone (the Signal Provider) sends out a message alerting those who are following his/her signals that a certain trade (the event) will be coming and may be going into profit.
Sometimes it is given having the following details:
- Date and time – it could be based on a strategy that is dependent on a specific event taking place on a given date and time and so you’ll be alerted to that
- Current price level – what is the price of the market right now relative to when they want you to enter
- Entry price level – at what price point should you enter the trade
- Stop loss – at what price should you close the trade in loss should it not go the way of the signal
- Take profit– at what price should you close the trade in profit should it go the way of the signal
- Lot size risk management – what lot size should you enter based on what equity. Should you enter 0.1 lot for every $100 in your account?
As you can see this is not someone else trading your account, but them giving you a signal telling you what to do. You are trusting that they have done the analysis of the set up and based on their strategy they think that the trade will go into profit.
Sometimes it so happens that your forex trading strategy is not yet on point and you just seem to be losing (we call it ‘blowing accounts’ in the industry) and you wanna go drink directly from the well. You see screenshots in the WhatsApp groups that you are a part of and you wanna hopefully start from a higher level than you’re at right now.
What comes to your head? “Ah, let me get some signals for trades that I can take and instantly be able to make profits like the guys who are selling it” – or so you think.
Will this make you profitable? As profitable as the guys who are always sharing their screenshots? Maybe ‘Gnimbi kinda rich’ that will see you balling and shot calling – the lifestyle we’ve all kinda wanted and yearned for our friends and family to see us having ‘finally made it‘.
I don’t mean to be the Profit Prophet of Doom here or the Bearer of Bad News but truth be told it’s not really going to be that easy.
When should you use Forex Trading Signals?
Is there really a time when these signals can have an impact on your trading? Yes, all signals will have an impact on your trading, the question is whether it will be negative or positive.
Whenever trading I always recommend that someone have a strategy that tells them whether a trade will be profitable or not. It may be BTMM, ICT, price action, Elliot wave, or whatever, but you need to have the knowledge of some kind of strategy. Boss, this is not a ‘spray and pray’ game – we’re not opening a bunch of trades and hoping one, if not all, of them are going to give us profit. Hope is not a strategy.
When you have a strategy this will help you to decide whether a trade is conforming to your ideas and if so, it may be a good time to enter it. The idea here is that when you are taking the advice from someone to enter a trade, this is your capital that you are risking. God-forbid but should things not go your way it’s you who losses money and not the signal provider – it is said a number of them trade Demo accounts and so a loss to them isn’t that big a deal.
Another element to look at is how your time looks like. Do you have the time to be taking these signals. Depending on the type of signal, sometimes it may need you to enter it immediately and if you are busy at the time then that means that you will either miss it, or if you try to enter later you may get burnt because the conditions that prompted you to enter may no longer be true.
When a signal is given, it is prudent to make sure that you understand the strategy that is being used to tell you whether to Buy or to Sell. That way, you are not going to just follow blindly, but be able to make your own analysis and decide whether you want to jump in or not.
A strategy is not just the lines on your chart but also the major part of risk management. What lot size should you enter vis-a-vis your capital? If they provide 10 signals and you take all of them at the same time, will your capital be able to withstand any potential drawdown?
If you receive the signal late, what checks and balances will you have in place to establish whether the signal is still valid or not?
Should your signal provider not be availing their strategy, then my recommendation is to stay away from them.
People at times turn to signals as a shortcut from working on strategies and trading plans but the truth is that even with a signal provider, a trader still has to do significant work to be able to profit even from those signals.
Where is the money?
Have you ever stopped to think why the Signal Provider is providing you signals? Where exactly is their money? I mean if they are making US$1,000 in a day like their screenshots show how does my $30 per month help them? In fact, why would they want to go through the headache and hassles of chasing such small monies when they can easily make the money I’m giving them in less than a trade?
I’d say, 9 times out of 10, the money for Signal Providers usually coming from your subscriptions and not really their trading. Could it be that they are trading demo accounts which don’t allow them to withdraw hence they have to charge people for the signals in order for them to make money?