What You Need To Know About Forex Trading Signals
Prices in Forex markets are the most volatile of any trading instrument. They change farther and faster (on average) than stocks and bonds, though commodities can be pretty roller coaster, too. This presents non-professional investors with a dilemma: either sit by a computer monitor all day, looking for price movements in real time or potentially lose a whole lot of money. But there’s a way out of that dilemma. Use signal services.
Rather than leaving all the work to guessing and instinct, signal services use historical data to figure out what’s likely to happen in the future. Price trends are analyzed, and a hypothesis is formed that lets traders know if and when price shifts are likely to occur.
Imagine getting an alert when conditions are optimal for buying currency. Trading software comes with its own system of alerts. You could also receive an e-mail or instant message telling you to purchase a specific currency at a specific price. Or you could get the signal in the form of a text message to your cell phone. These signals are built using current data and historical trends. When the time is right, you get the signal — and the chance to capitalize on price movements.
For example, one commonly used technical indicator is something called MACD (Moving Average Convergence/Divergence). Without going into details here, it uses the moving average – the change in an average price over time. A signal can be generated when the value of MACD crosses above (or below) a certain threshold. Buy when it moves above the line, sell when it falls below.
The process can be automated even more. A trader can choose to have a buy or sell executed automatically when a certain signal is generated, depending on the recommendation at the time. The trader receives the alert and the Forex broker places the order based on the standing order.
It’s not advisable to use any trading tool without regard and serious thought. If every aspect of your trading is automated, you’ll never develop the skills and instincts possessed by top traders. This can lead to big losses down the road, especially if you stop relying on signal services.
That’s akin to telling your broker to make the most of your money at the least possible risk. That sounds ideal, but you’re essentially putting your financial future in the hands of another person.
There’s no denying the usefulness of signal services. Use them wisely and you don’t have to spend hours watching every market movement. You’ll be able to understand market data more easily, and you can make better buy and sell judgments.
All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.
Forex trading is not regulated. There are unscrupulous brokers who will sell promises for large sums of money. Their signals may or may not be worth the cost. Only you can decide.
Options for limiting risk are also things that investors should know. The volatile nature of Forex trading makes it important to time buy and sell orders properly and to learn about and employ methods such as stop-loss orders and limit orders.
Filed under: Business