What Are Trading Signals?
Trading signals are indicators of the possible future movement of an instrument. These signals are derived from either technical or fundamental analysis. Some traders prefer to use signals created by both of these forms of analysis whilst others will rely wholly on one form.
It is a subject of debate whether certain forms of technical analysis are more reliable in some markets than others. The argument is that if a certain chart pattern/parameter is recognised by all the market participants as, say, the reversal of a bear run then it will become a self-fulfilling prophesy when everyone acts on the signal and the bear run ends.
How Are Trading Signals Generated?
There are two types of trading signals. One is automated and the other type is manual. Automated signals tend to be based on technical analysis and are basically computer software that generates trading signals when certain parameters are met in the market. The software usually relies on technical analysis methods such as Moving Averages, Stochastics and Fibonacci levels to produce the trading signals.
Obviously, the economic background to trading is also important. Economic news releases and suchlike must be considered as these can also give trading signals. Some automated systems do try and implement fundamental analysis techniques to track such events. Fundamental analysis does, however, broadly remain in the domain of manual trading signal providers, such as experienced traders, analysts and economic commentators.
How Are They Distributed?
Trading signals can be distributed in various way, e.g. Email, text SMS, brokers’ own apps, MT4 or instant messaging apps like Telegram or Whatsapp. Most of the said methods of receiving signals require internet connection. If you choose text SMS as the main distribution channel, you don’t need the internet access and can receive them at any location around the world. However, the downside is that only the main points of a signal can be delivered via this way.
Do I Have to Pay for Signals?
Some trading signal providers charge for their services. It’s normally charged as a one-time fee or based on a subscription model. On the other hand, some brokers, like USG UK for example, offer free trading signals directly to your trading platform, with a minimum deposit.
Using trading signals can be beneficial as many traders think that it can be a very time-effective way of doing market research. It also provides trading beginners with the opportunity to shadow experienced professionals and advance their trading knowledge. All in all, traders choose to use trading signals for different reasons but the most important thing is to choose the signal provider that suits your own trading style. Lastly, having a comprehensive understanding of the economic background and advancing one’s trading knowledge is the key to profitable trading.