What are Forex Trading Signals?

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Contributor, Benzinga
June 16, 2023

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Staying on top of news flow and making timely decisions are crucial actions for success in the fast-paced world of forex trading. Forex traders rely on tools and techniques to remain competitive. A forex trade signal is one such tool. These valuable indicators offer insights into opportunities, guiding traders in decision-making.

How do forex trading signals work, and how can you use them to improve your trading results? In this article, Benzinga discusses forex trading signals and how to include them in your trading strategy.

Disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How Do Trading Signals Work?

Experienced traders and algorithms produce trading signals to guide traders on when to buy and sell financial assets. The signals are based on market research using technical and fundamental analysis. Technical analysis focuses on historical price and volume data, while fundamental analysis examines the underlying value and financial health of an asset.

Trading signals are communicated using email, SMS, mobile apps or dedicated trading platforms. Traders may receive signals from online communities, trading forums or social media platforms. All the signals add up, and they need to decide whether to follow the signal, modify it or disregard it.

Types of Forex Trading Signals

Several types of forex trading signals are discussed below.

Manual and Automated Forex Signals

Forex signals may be manual or automated. Traders and analysts use their expertise to create manual forex signals. These signals are based on a thorough analysis of technical indicators, chart patterns, news events and economic data.

Traders who receive manual signals must execute the trades after considering their risk tolerance and trading strategy. Manual forex signals rely on the judgment and experience of the signal provider. Forex traders should evaluate the provider’s reliability and track record.

Automated forex signals, also known as algorithmic or computer-generated signals, rely on predefined rules, mathematical models or pattern recognition. These identify real-time trading opportunities. Automated signal systems continuously analyze market data. They deliver signals to traders through specialized software, trading platforms or API connections.

Traders can manually execute the signals or enable automated trading, allowing the algorithm to place the trades. The effectiveness of automated forex signals depends on the quality of the underlying trading algorithm and the accuracy and timeliness of market data.

Paid forex signals usually involve a subscription or upfront fee, where traders pay a provider for regular signals. The signals are often generated by experienced traders or professional analysts who dedicate significant time and resources to market analysis. Paid signals are often of a higher quality and contain more in-depth analysis. The providers have a vested interest in delivering accurate signals to retain paying subscribers.

You can also access forex signals, at no cost, from traders, online communities or signal groups. While free signals are a convenient starting point, they may vary significantly in quality and reliability. Free signal providers may lack the same level of expertise or resources as paid providers. The signals may be subject to less rigorous analysis.

Entry and Exit Forex Signals

In forex trading, the timing and accuracy of entry and exit signals are crucial. They can significantly impact a trade outcome.

Entry and exit forex signals show the optimal timing for forex trade entry or exit.  Entry signals provide the currency pair, entry price and other information like stop-loss and take-profit levels. The signal provider or algorithm will offer criteria for entry signals. The system may, for example, trigger a signal when a pre-determined price level or chart pattern is reached.

Exit signals may include the recommended exit price or instructions on how to manage the trade. Exit signals are often based on predefined criteria, like a target price or technical indicator. Traders use exit signals to manage risk, maximize profits or cut losses.

How to Use Trade Signals

Here are a few steps to follow if you plan to use forex signals.

Choose a Reliable Signal Provider 

Find a reputable signal provider with a proven track record and positive reviews. Consider its expertise, accuracy and the type of signals it provides (manual or automated). Evaluate the provider's historical performance and approach to risk management.

Understand the Signal Format 

Familiarize yourself with the signal delivery mechanism and the information provided. Signals usually include the currency pair, entry price and stop-loss and take-profit levels.

Evaluate the Signals

Assess how well the signals align with your trading strategy, risk tolerance and financial goals. Do an analysis to validate the signal validity under current market conditions.

Use Appropriate Risk Management 

Protect your capital using sound risk management principles. Decide on the appropriate position size based on your risk tolerance and the signal's stop-loss level.

Execute Trades

Place buy and sell orders on your chosen trading platform. Adhere to the signal's entry price, stop-loss level and take-profit level.

Track and Manage Trades

Monitor your trades closely. Stay up to date with market developments and adjust your trades if necessary.

Evaluate Performance

Regularly review the signal provider’s performance and your trading using objective metrics. Assess signal accuracy, trade profitability and whether the signals align with your trading goals. Make changes as required.

Do All Brokers Offer Forex Signals?

Some brokers may provide built-in signal services or partnerships with signal providers. Brokers have different business models, targeting different types of traders. Some may cater to professional or experienced traders who prefer to conduct their own analysis and make independent trading decisions. These brokers may not prioritize signals as part of their services.

When looking for a broker, find out about signal service availability. If it is a service you want or need, consider using independent signal providers or standalone platforms that offer signal services, regardless of the broker you choose.

Best Forex Signal Providers

Find the best forex signal providers in the table below.

  • Learn2Trade
    Best For:
    Advanced Technical Analysis
    securely through Learn2Trade's website
  • TWP VIP
    Best For:
    Forex Signals
    securely through TWP VIP's website
  • Forex.com
    Best For:
    Excellent Trading Conditions and Overall Offerings
    VIEW PROS & CONS:
    securely through Forex.com's website

    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% to 77.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

    The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account

  • 1000pipbuilder
    Best For:
    MyFXBook Tracking Verification
    securely through 1000pipbuilder's website

Frequently Asked Questions

Q

Do forex signals work?

A

Forex signals do work, but you mustn’t blindly follow them. You need to make your own decisions based on your trading plan and knowledge of the markets.

Q

Do professional traders use signals?

A

Many professional traders use signals to help them to make decisions on when to enter and exit a position.

Q

Can I get free forex signals?

A

Many online forums offer free forex signals. Forex brokers may also offer users free forex signals.

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Anna Yen

About Anna Yen

Anna Yen, CFA is an investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about investment topics ranging from traditional asset classes and derivatives to alternatives like cryptocurrency and real estate. Her work has been published on sites like Quicken and the crypto exchange Bybit.