Forex Signals form the basis of pretty much every type of foreign exchange trading. Whatever your approach to forex trading systems, whether you are short-term, long-term, high-risk, low-risk, trading the cash forex market or trading forex futures or options, your trade entry and exit points will always be based upon some sort of forex signal. Even if you don’t use any charts or software for trading, that voice in your head saying “SELL NOW!” is still a signal to trade!
So what exactly are forex trade signals and how and when are they generally used?
In its most basic form, a forex trading signal is nothing more than a recommendation (or instruction) to buy or sell a particular currency combination, often (but not always) at a particular price, but always under a particular set of circumstances. This might sound like a simple definition. However, the most accurate forex signals tend to be those designed with a particular purpose, or with a specific trading strategy, in mind.
A forex entry signal is a very different animal to a forex exit signal. The entry signal tells you when to get into the market, whereas the exit signal tells you when to get out of the market and close your position.
To explain this further, let’s look at the example of two traders. Trader A has a long-term outlook and already holds a substantial position in GBP/USD. Trader B is a short-term day-trader, who is currently square (i.e. he doesn’t currently hold a position in GBP/USD).
These two traders are following very different strategies. They are looking for different things. This means that the best forex signal for one is not going to be the most appropriate for the other. They might both be looking at the same thing (GBP/USD), but whereas Trader A is looking to either add to his position for the long-term or to close it out (and maybe even reverse it) given a particular set of circumstances, Trader B is looking for an opportunity to open up a position for short-term gain, holding that position only briefly before (ideally) closing it out for a profit.
From the example above, you can see that there is no such thing as a universal set of forex trading signals that apply across the board. So if you are looking at buying some forex signal software (or subscribing to any other forex signal service for that matter), you need to ensure that the software or service you choose can adapt itself to your own personal trading approach. Check out some forex signal reviews and talk to other traders who follow a similar approach to your own.
And don’t forget, whatever Forex Signals you use, never risk money that you can’t afford to lose. Happy trading!