Perhaps no asset class has seen a proliferation in signals services anywhere on par with the forex market. That’s not surprising given how fast forex has grown in recent years. It wasn’t until the mid-1990s that retail traders had access to currency trading.
The evolution of the Internet and technology solved that and now anyone can trade forex from anywhere in the world that has an Internet connection. The rapid growth in access to forex trading has fueled the surge in forex signal services that are available on the market today.
To get a glimpse of just how many forex signals services are available on the market today, just enter the term into any search engine and look at how many results pop up. It would take you hours to sift all the forex signals services on the market.
Most of the lower-tier forex signals services share one trait in common:
They promise outlandish returns for very minimal costs. These promises raise suspicions among astute forex investors and we’re going to take a look at how to really profit from legitimate forex signals.
Develop Your Own Signals or use a Ready-Made System?
We don’t want to imply that all forex signal services are bad. That’s not true and there definitely some reputable products available. These systems are ideal for active investors that want a helping hand in their trading or for investors that don’t have the time to be at their trading computer for an entire market session.
The premise behind most of the good signal services is easy to understand. They simply give you a trading idea, sent via email or accessed through a members-only Web site, and it’s up to you as the trader to decide to take it or not.
Of course, we want to know why a system is generating a particular trade and that information is easily obtained by reading your system’s user manual.
For example, if your signals service recommends just one or two trades a day, it probably uses longer-term charts such as 30 or 60-minute charts to find trades. You know this going in, so you won’t be surprised to get a small amount of trades per trading day.
On the other hand, you can take the reins yourself and use a combination of chart patterns, indicators and oscillators to develop your own signals. This would be a good example of “rules-based” trading, which is what you should be doing anyway and we’ll take a more detailed look at it below.
Using the Tried and True Signals
In reality, you don’t have to develop your own signals, you can simply rely on some of the signals that traders have used for years. Some of the best buy and sell signals can come from studying charts and being able to discern when a certain pattern has formed.
One of the favorite chart patterns of forex traders is the head and shoulders. Head and shoulders patterns are easy to spot and occur frequently in currency trading. They represent the reversal of a bullish trend, so the signal they give off is to go short.
In addition to the head and shoulders, there are several other chart patterns that tip traders off to certain moves, so being able to recognize these patterns can really bolster your bottom line. Start with studying the double top and double bottom and some of the triangles to find other important chart patterns.
For traders that prefer the use of indicators and oscillators, choices abound for finding profitable forex signals. Take Stochastics for example. Stochastics are the combination of a fast and slow line that measure overbought and oversold conditions in a currency pair. Scaled from 0-100, a Stochastic reading of 70 or above is considered overbought and reading of 30 or below is considered oversold.
That may sound easy, but there is no “holy grail” combination of indicators that will lead you to forex millions. It’s just a matter of personal preference.
Putting It All Together
The bottom line is we do like forex signals services. That is, we like the reputable ones that are easy to use and are forthright about their trading results and why they take certain trades while passing on others.
We also favor traders learning as much about the forex market as they possibly can and this includes studying chart patterns. Taking a pass on using indicators like Stochastics is one thing, but if you consider yourself a technical trader, chart study is objective number one.
Using forex signals is all about tacking more pips onto our trading accounts, so in the end, it doesn’t really matter where your signals come from, as long as they’re helping you net more pips.
And if you do opt for an automated signals service, that’s fine, just don’t make it the entire backbone of your trading system. Make it a complement to the other tools you’re currently using.