What are Forex Signals: All Types of Them

December 21, 2020 - Евгения Корнейчук

A trading signal is a simple alert in one of the accepted forms that notifies a trader about an oncoming investing opportunity. These are most commonly used in currency trading for several reasons listed below. However, there’s no reason why these can’t be utilized in other markets as well.

Signals come in different forms, can notify about different things and can be produced differently. In broad sense, a signal is not even necessarily a message, but rather an understanding that there is an opportunity. This article will list a number of aspects associated with signals and also a few reasons why signal trading is so effective.

What are signals?

Signals are received by a trader when there is a good opportunity to invest their money into one currency or another. Since signals are not exactly homogenous in their nature, you can sort them in several different categories:

• Manual or automatic
• Technical or event-oriented

Manual & Automatic

The first category pair is self-explanatory, really. The automatic alerts are created by the software designed specifically to analyze the historical or recent data and notify the trader if there is recurrence coming up. It’s done without the user’s intervention, and it’s largely why the type is called ‘automatic’.

Manual signals, on another hand, are done by users themselves. If you have been trading before, you could’ve created a signal yourself. Since signals are created by analyzing the data from the past, your understanding that the price is going to move a certain way because it did so before is a manual trading signal to yourself.

But manual signals aren’t necessarily so boring. Many people seek the help of professionals who would notify them if they’d spot an oncoming price recurrence with their sharpened senses. The alerts sent by the professionals to their clients via messages are currency trading signals in the most orthodox way possible.

Technical & Event-oriented

While you can put signals in various baskets based on how they were created and received, you can also distinguish them by the type of information therein. There are two general types of data that you can receive through a signal, be that manual or automatic.

Technical signals are all about the price shifts, sequences and the results of these sequences. They are created by analyzing the historical data (either in the hands of a professional or software). It’s a classic way of predicting the nearest price movement – if, say, a currency frequently drops in the span of 5 charts and then rises, then it will probably do so again, and you get notified that it happens again.

If you want to benefit from reading technical signals, it’s best done with the help of an automated trading system (a robot or an EA), because while experienced traders may remember several key price sequences on the market, a robot can hold much bigger masses of data.

Event-oriented or news-oriented signals, on another hand – are just partially analysis. These arise from recent events and news. You can also receive them from professionals alongside the advised mode of behavior. However, it’s always good to follow the economic and trading news to stay updated.

Being updated means you’ll be able to invest into obviously beneficial currencies without waiting until a signal arrives or a wave of traders notify you about the surge that already came and went. If you get updated via a signal – good for you, but staying updated through your own means is never amiss.

Events can be recurring, but they are very often surprises. And by ‘events’ one doesn’t just mean some economic consortiums, but also general – big and small – decisions, policy changes, news and sudden currency price updates.

How to receive signals

There are several trusty ways of staying constantly updated with trading signals. You might’ve grasped a few already, but let’s name just a few major sources of Forex trading signals:

1. Automated trading systems – robots, Expert Advisors, standalone analytical software
2. Living signal providers – professionals who send out signals on a regular basis
3. Getting them yourself

The first means is quite understandable. You can get the trading notifications from software that analyzes the data from before either in conjunction with some other features (automated decision-making, etc.) or as a standalone analytics tool. They are usually quite efficient, by not flawless.

The automated systems called trading robots even use these signals to make position-managing decisions without the intervention by a trader. This way, the signals will be both created by a machine and also used by it to make conclusions about the current market situation.

The second way consumes fewer resources and less time. Living signal providers may be trading news portals, standalone individuals who send out their professional opinion to a list of traders for a living, and so on. You can subscribe to their feeds, sometimes for money, and benefit from it.

This plan can potentially be more flawed than getting your signals from an algorithm, but it may still be better than your own judgment (the decision is still up to you, however). Most of these signals are simply someone’s opinion. As such, it’ll be cheaper to acquire it on a constant streak, but they’ll probably be worth less than data-backed analysis from a machine.

There’s always a more productive and a more (arguably) interesting way of signal-farming, however. As mentioned, signals aren’t necessarily alerts. However, news articles most surely are alerts. So, one of the oldest and most trustworthy signal sources is news trading.

News trading

News trading isn’t signal-finding in the traditional sense of it. News trading is when you use the recent events to understand what you should do next on the market. It’s essentially where event-oriented signals come from, but instead of getting them from experts you can get them yourself.

Granted, it needs a bit of industry understanding on your part, but you can analyze the recent events to figure out how they will affect the market you’re currently trying to win profits from.

It’s more productive and interesting exactly because you do it yourself, and by doing it you learn how markets and trading in general work. You’ll need this knowledge if you want to keep on being a trader.

Why are signals useful?

Signal trading – or trading with the use of signals – is very helpful. Some traders can’t even imagine working without the help of these notifications. And yet, what use are they, exactly?

You can obviously trade and make profits by just investing into the currencies that already grow and then sell them when they accumulate some value. It’ll bring you some money, although you’ll also lose quite a bit from putting your trust into the wrong trend.

However, if your trust was backed by analysis, historical data or an expert trader, then you would’ve lost much less money on wrong bets. As a consequence, trading in accordance to signals multiplies your profits significantly. It’s true that you shouldn’t trade signals on your first day, but you should acquire these advantages very soon.