Before we can have an in depth discussion of the relevant aspects of how to select a forex signal provider, we must first take some time to understand what a forex signal is and how traders can implement it within their trading plan.
A forex signal service can provide traders with an objective means for analyzing the markets. An FX signal contains concrete information about a particular currency pair, including entry price, stop loss price and take profit targets. A trader can use that information to assist with their trading decisions. Forex signal providers will typically relay their trade alerts via Email, SMS, Member’s Area, or Mobile forex signals App. Based on your preferences you can opt in to any or all of the notification methods available thru the Signal Provider.
In most cases, fx signals are sent out in real time by the forex signal company. Based on the signal provider’s methodology, the trade alerts can be based on a variety of factors and tools. But generally, most Signal providers will focus on technical chart analysis, fundamental news analysis or a combination. You should know which type of market analysis the forex signal Pro uses for generating live forex signals to make sure that it aligns with your comfort level.
FX Signal Providers
A forex signal provider will issue trade alerts to its members on specific currency pairs that trigger a potential trading opportunity. These live trading signals are usually time sensitive in nature and are only valid for a given period of time. FX signal providers will send out these trade setups to their subscribers in real time via Email, SMS or other broadcast means.
Forex Signal providers are typically grouped in two different camps based on how they generate their trading ideas – technical analysts and fundamental analysts.
Technical Analysts base their trading decisions on chart analysis including support and resistance levels, candlestick patterns, price channels, market structure, or other technical approach. Many technical analysts have a proprietary method for analyzing the markets and the highly successful ones have spent many years researching and testing their methodology over historical data and in real time market conditions.
Fundamental Analysts base their trading decisions on economic and news related data. This could be in the form of long term interest rate analysis, inflation, central bank policy, employment reports, sentiment surveys, and more. Some are longer term position traders while many others are shorter term traders that try to catch volatility spikes after an anticipated news release.
Free vs. Paid
As you are researching different FX signal providers, you will begin to notice that some FX signal providers offer their services for a fixed monthly fee, while some others offer free fx signals. You should understand the difference between the two types of service models.
Free Forex Signals – Some FX signal providers offer their trading signals free of charge. Typically, these providers will require you to sign up with a partner forex brokerage firm and they will be compensated from a percentage of the dealing spread. This doesn’t cost the trader anything extra, but it is a form commission paid to the signal provider by the Broker directly from their revenues.
Before choosing the best Free Forex Signals service, it is important that you check the performance record of the signal provider to ensure that their track record is good. Also be wary of Free Forex Signal providers that provide trade alerts with very little pip profit targets. This is usually a red flag that the signal provider may be trying to “churn” your account rather than provide the very best forex signals and setups available in the market.
Paid Forex Signals – The majority of FX signal providers will offer their trade alerts on a monthly fee basis. Some will offer a trial period for members to test drive the fx trading signals before they commit to a monthly membership. A Top Forex Signal provider with a consistent track record is always in demand and will typically charge $ 75 – $ 150 per month for their premium fx signals.
How To Use
Once you have signed up with a service to receive online forex signals, you will generally have the option to receive your trading alerts via Email, SMS or both. You should select that notification mode that will allow you to receive the alert in the quickest way possible as many trade alerts are time sensitive in nature.
There are a myriad of ways that members will utilize the issued trade alerts. Depending on your personal preference, you may decide to follow the trade signal and initiate the suggested trade after you have confirmed that it meets your objectives. Many inexperienced or part time traders prefer this type of hands off approach where they can use a forex signals website to do the heavy lifting when it comes to time consuming market analysis.
Others prefer a more hands on approach. They prefer to utilize the trade alerts as a secondary or confirming indication of their own market analysis, For example, short term traders may take trades using their own system but trade only in the direction of the online trading signals generated by the Signal Provider. And there are many other ways that signal users can use this type of service to complement their trading.
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Quality over Quantity
A common question for many seeking out the best forex signal provider is “How many signals will I receive per week or per month”. While you should have an idea on this, you should also be aware that many times it will vary. When volatility in the market is high, you may find that you are receiving more daily forex signals than average, and when volatility in the market is low, you may find that you are getting less trading signals online than average. This is normal and should be expected.
Newbie traders also mistakenly believe that the more often they trade, the more money they can make in the markets. This is a misconception and often the reverse is true. It’s not the quantity of your trades that matter, its the quality of your trades that makes the difference between a winning and losing track record.
Patience is a virtue in trading and it is important to pick your spots rather than always trying to be in the market. Most top forex signal providers are aware of this and act accordingly. So it is important that you consider this and remember that not being in the market is also a valuable position at times.
Timeframes
Generally speaking, trading signal providers will fall within one of four different categories based on the time frame that they trade. There are scalpers, day traders, swing traders, and position traders. We will discuss each of these below:
Scalpers – Scalping involves trading very short term time frames, and trades can last as little as a few seconds to as long as a few minutes or longer. Usually scalpers rely on extremely fast execution models and very tight spreads in order to succeed. Profit targets are usually less than 10 or 15 pips. Very few of the best forex signal service providers fall into this category.
Day traders – Forex day traders typically hold positions for less than a day or only during the session that they are trading. They will typically trade off of 5 or 15 minute charts. Although you will find many real forex signals providers that specialize in this timeframe, it is very difficult to make consistent profit as a day trader due to high transaction costs and limited price moves during the day.
Swing Traders – Swing traders usually hold a position from about two days to a few weeks. They will be focusing on trading the 4 hour, 8 hour, and daily timeframes. These timeframes offer the best combination for opportunity while keeping transaction costs low. In addition, technical patterns that occur on the swing trading timeframe are much more reliable than the lower time frames. The most successful FX signal providers tend to trade and issue alerts for the swing trading timeframe.
Position Traders – Position trading is more akin to longer term investing. Typical hold times are from a month to a year or longer. Many position traders tend to be fundamentalists that rely heavily on macro economic analysis for their trade decisions. There is a decent amount of currency signal providers that fall within this category.
Reliability
Finding a reliable forex signal service can seem like a challenge. There are those signal providers that are professional and transparent. And unfortunately there are those providers that do not always have their members best interest in mind. It is up to you to do your due diligence to make sure that you are working with an honest forex signals provider that you can trust and have faith in.
Now, some people may think “reliable” means having a high win rate, but that is not really what you primarily want to be looking at. In fact, win rates are not that important as a metric by itself. You must also analyze average risk to reward in conjunction with win rate. There are strategies with 90% win rates that can lose money and then there are strategies with 30% win rates that can make money. It is all relative, so don’t let win rates fool you.
Reliable forex strategy providers have a consistent performance record. They may not be profitable every month, but over time they show consistent results. Another factor to consider, is the technology the signal provider is using. Do they have a reliable platform to send out notifications and are there multiple ways for you to receive the alerts? Something else to look at is the depth of detail that the forex buy sell signals provide. Do the trading alerts always provide stop loss levels and targets or do they only provide superficial information such as entries but no exit details? These are some of the factors you need to consider.
Reputation
Not all Signal providers are created equal and some services are clearly better than others. So how do you find out if a provider is reputable and worth your time? Below are a few suggestions to ensure that you are using a trustworthy, reputable forex signal service.
Google them – Yes, simply Google the provider company and the head trader behind the service. Are they mentioned in any important trade publications or articles? What type of social following do they have?
Join their Email List – One way to find out the quality of information you will receive from a provider is by joining their email newsletter if they have one. You will get a sense of the value that they provide for free so that you can judge whether their premium forex signals service will meet your expectations.
Check their Track Record – All reputable FX signal providers will provide a performance record detailing their published trades. This is a great place to look to get a feel for their average pip profit per month, their risk parameters, average win percentage, and other related metrics.
Sign up for a Trial – Sometimes the best way to get started is by signing up for a forex signals trial. You will only get a real sense of the quality of service by diving in and taking a test drive. Many providers offer a 1 or 2 week trial for members to get their feet wet.
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Performance
Do forex signals work? Well, the answer to that is – It depends. Taking a look at the signal providers performance page can provide valuable information about the service’s historical track record. You should look at the average pips gained per trade and compare that to the average pips lost per trade. Then compare that to the overall win rate. In addition, you should see how many months on average the signal provider has positive gains vs how many months it has negative gains.
Another important metric is to see how many trades on average the signal provider is issuing. Most professional services will try to balance the number of opportunities available in the market with the overall transaction costs of trading. If you notice that the signal provider is sending out too many signals and has small profit targets, this could be a red flag or at least a sign that achieving profitability with the service will be challenging at best. When possible it is best to select a paid forex signals service rather than a free forex signals service to avoid any conflict of interest issues.
When evaluating the performance of FX signal providers, you should look at the pip gains rather than percentage gains. The reason for this is that percentage gains can be misleading as varying leverage amounts will provide for very different percentage gain data.
** A cautionary word about performance data is that historical returns are not indicative of future gains, and as such you should not rely solely on that information or expect that future returns will be similar.
Win Rates
One of the most common misconceptions in trading is that “The higher the win rate, the better the trading strategy or system”. Not only is this statement untrue, it can be dangerous to your bottom line.
But first where does this idea come from? Well, the idea has been spread by less than reputable trading system developers, unscrupulous signal providers, and downright shady characters within our industry. And the reason is quite simple. To get newbie traders to buy or subscribe to their service. They can tout 80% or 90% plus win rates and by doing so provide unsuspecting traders with a false sense of security.
Most, if not all of these types of strategies rely on taking inordinate amounts of risk and often use very large stop losses and very small profit targets. For example, risking 100 pips to make 15 or 20 pips. Its all smoke and mirrors with these strategies and it usually ends badly for subscribers. It is neither a professional or responsible way to trade.
So with that out of the way, lets now discuss the most important element in assessing a strategy. And that’s risk adjusted return or risk vs reward. Most reputable FX signal providers will only enter a trade that has a favorable risk to reward profile. And this is the right way to trade the market. So these traders can make consistent profit even with 50%, 40% or 30% win rates for example.
So make sure you avoid the trap of looking only at win rates when evaluating an “accurate” trading signals provider.
Drawdowns
Losing trades are an inevitable part of trading. The sooner that traders realize this, the faster they can get to the business of managing risk properly. Regardless of the FX signal provider that you use, every trader will experience periods of negative returns or drawdowns. This is normal, but many subscribers tend to bail on the signal provider the moment that this happens. It is important to remember that even a trader offering the best forex signals in the world will have losing periods from time to time.
Constantly switching between one service to another is counter productive. You must understand that drawdowns are a normal part of trading and as long as it is within a reasonable level, a good trader will usually rebound from it. You should make sure that you are allowing your FX signal provider sufficient time to recover before deciding on pulling the plug or switching providers. Often, it usually after a drawdown that they start to post significant winning trades and gains.
Having said that, there are certain things that you can do as a forex signals online user to minimize drawdowns within your own trading account.
Here are a few to consider:
Risk only a small percentage of your equity on each trade.
Use conservative amounts of leverage
Always use a stop loss order, and do not override it.
Do not trade correlated pairs simultaneously.
Try to limit exposure to the markets over the weekend.
Choosing a Broker
One of the most important decisions you will make after choosing a Top forex signals Provider is your choice of forex broker. Forex brokers come in all shapes and sizes, and proper due diligence is required in selecting the best forex broker based on your personal preference and trading style.
Here are a few of the more important criteria you should evaluate in choosing a forex broker:
- Regulation – You should make sure that your broker is licensed and regulated by an overseeing agency. Brokers that are based in the USA, UK, Australia, European Union, and Canada have the most capable regulatory bodies that monitor the activities of forex brokers.
- Spreads – Dealing spreads are the cost of doing business. Some brokers will charge a commission only on your trades, while others will be commission free but will charge a slightly higher dealing spread as their form of compensation. It is important to choose a broker with competitive spreads so that you are able to retain the most profit from the good forex signals that you use to initiate trades.
- Customer Service – Although most traders will execute their trades directly on the brokers platform, it is important that you still have access to your broker via phone or live chat support. In addition some brokers will provide customer service in many different languages. You want to be able to get in touch with someone at the broker’s office any time problems or issues arise.
Alert Types
There are several different ways an FX Signal Service can send out alert notifications to its members. The most common methods for transmitting trade alerts include Email, SMS, Mobile App, and a Member Area. Let’s go thru each of these communication mediums:
Trade Signals via Email – You can opt in to receive trade alerts to your designated email address. Many users create a special email account just for the purpose of receiving trade alerts from their signal provider. This helps ensure that their inbox will be free from other clutter and that they have quick access to the information from the currency signal provider.
Forex Signals via SMS – SMS messages are basically text messages that traders can receive on their cell phones. SMS is one of the fastest and most efficient modes of delivery of relatively small time sensitive information. As such SMS delivery is a great medium for receiving fx signal alerts.
Trade Alerts via Mobile App – Some providers have created their own mobile app and can issue forex alerts directly to the mobile app. Though forex signal apps are growing in popularity, they tend to be checked less regularly than SMS messages, and as such they are generally a less effective channel for receiving forex signal alerts.
Trade Alerts via Members Area – Many FX signal providers have a Private Members area – a portal where subscribers can access current and past published trade alerts. Many signal users like to receive signal alerts via Email or SMS, and then login to the Private Members area to analyze the issued signal a bit closer.
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Manual vs. Automated
When it comes to trade execution, there are essentially two types of Forex traders – those that are discretionary traders and those that are system traders. Most forex signal providers will fall into one of these two camps.
So which type do you choose? There is no clear cut right or wrong answer, but typically manual discretionary traders will tend to have a better edge in the market as they are able to adapt to changing market conditions faster and more intuitively than system traders.
Discretionary based forex signal providers research and conduct market analysis and issue forex trade alerts based on a combination of factors present at a given time. They may consider technical patterns, fundamental data, upcoming news events, current volatility levels, and correlation. As such they tend to have a better picture of the market than a simple rule based trading system that cannot take all these different factors into account. Most successful professional traders and the best forex trading signals providers tend to be discretionary in nature.
This is not to say that system trading does not have a place. If a trader would like to test out an automated trading system within their portfolio, they may want to allocate a small portion of their trading account or let it run for a while on demo before deciding whether it would be a good fit for them.
Trading Strategies
When it comes to trading the currency markets, there are essentially two major schools of thought. There are what we call technical analysts that analyze markets based on price behavior, and then there are fundamental analysts that rely mainly on economic indicators for determining future price movements of a currency pair.
Technical Analysis – Forex signal providers that generate trade alerts based on technical analysis believe that recent and historical price movements as seen on price charts should be the primary means to determine likely price direction of an instrument. Technical analysts hold that market movements are influenced by mass psychology which in turn leaves a fingerprint with predictive value. As such, studying price action ultimately allows a trader to make the most informed decision about future price movements in the market.
Fundamental Analysis – Forex signal providers that generate market trading signals based on fundamental analysis rely mainly on economic data and news reports to gain an understanding of the current market situation and use this data to best determine the likely path for future prices. A fundamental forex trader will look at and study data points such as a country’s inflation, GDP, employment situation, benchmark interest rates, and balance of trade to help them make trading related decisions.
Pros and Cons
Many new or part time traders find it difficult to watch the markets throughout the day, or may simply not be interested in doing so. They may instead prefer to have a professional trading service such as an FX signal provider do most of the research and just provide them with actionable information based on their market analysis. In addition, there are also other traders who prefer to use a competent signal provider as an additional supplemental source that can provide them with a market bias or a way to confirm their own trading decisions.
Regardless of how someone decides to use a signal provider service, there are some advantages as well as some disadvantages of using such a service. We’ll compare the pros and cons of using an FX Signal provider below:
Advantages of using a Reputable FX Signal Provider
Allows you to spend less time in your research and in looking for trade opportunities.
Provides for an excellent learning opportunity by getting to see how a professional trader interacts with the market.
You are able to view the historical track record and performance of the provider and decide whether the risk reward profile meets your criteria.
Disadvantages of using a FX Signal Provider
Some services are not run in a professional manner and do not always have the best interest of the subscriber in mind.
Some services are run using a trading system that generates automated forex signals which does not have any human involvement or input. Though these systems can work from time to time, they are prone to large drawdowns when market conditions are unfavorable.
If your goal is to be a completely self reliant trader, then you will eventually need to learn to do your own research and testing for trading the markets.
Dealing Spreads
Every trader should understand the primary costs of trading. In the forex market, the primary cost of trading comes in the form of dealing spreads and/or broker commissions. These costs have to be taken into account in order to get a true reflection of the potential profit/loss that may be realized.
Individuals who use a Forex Signal provider that issues very short day trading signals should be especially cognizant of this, as the costs of trading with these types of programs can weigh heavily on the overall profitability. Usually swing trading or longer term approaches will be much less sensitive to dealing spread and commission costs as profit targets are large enough to minimize these costs in relation to potential profits on a trade.
Below is a brief description of each of these two cost components of trading:
Dealing Spreads – Also referred to as the Bid Ask Spread, this is the difference between the buy and sell price of any given instrument or currency pair. The narrower the spread the less you will have to pay to execute your order. The larger the spread the more you will have to pay to execute your order. Dealing spreads are a form of compensation for the broker.
Commissions – There are some brokers that do not mark up the dealing spread, but rather charge a commission for each trade. With commission only forex brokers, you will enjoy a much lower dealing spread, but you will have to pay a fixed fee per trading lot that you trade.
Execution Style
Obviously, in order to open a position in the FX market, you will be required to initiate an order. An order provides pertinent information to your broker which in turn they use to execute your instructions in the market.
There are five primary order types:
Market Orders – This is the most common type of forex order. These orders instruct your broker to buy or sell a currency pair at the best currently available price. This is considered an instant order because the idea is to get filled as fast as possible.
Limit Orders – When you place a limit order, you are generally asking your broker to buy at a price level below the current market price, or sell at a price level above the current market price. These orders will only become active if and when price reaches the limit order price.
Stop Orders – Stop orders are similar to limit orders, but with Stop Orders you are looking to buy above the current market price, or looking to sell below the current market price.
** To get the most out of a Forex trading signal service, you should check to make sure that they are using limit orders or stop orders for their signals. This allows sufficient time for subscribers to get and analyze the trade alerts, and place a trade if they so decide.
Take Profit Orders – This is typically called a target price order. This order will close your position when your target price is reached.
Stop Loss Orders – Stop loss orders act to protect your trade and account when price moves against you. When your stop loss order is hit, your trade is automatically closed to prevent additional losses.
Position Sizing
Money Management is an integral component to successful trading. And a major component of Money Management is Position Sizing. Traders need to consider the type of position sizing model that they are most comfortable with and prefer to utilize for their trading account.
Below we will outline four main type of position sizing models available to the trader:
Fixed Lot Position Sizing – This is one of the simplest forms of position sizing. With this approach, a fixed number of lots are allocated for a trade regardless of the overall trading account balance.
Fixed Fractional Position Sizing – This is one of the more popular position sizing models. Based on this approach, a trader will risk a fixed percentage of capital on each trade. The advantage of this model is that it keeps risk constant as a percentage of the account balance. In addition, it allows for geometric growth of the account. As your account balance grows so does the dollar amount risked and vice versa as your account balance declines.
Fixed Ratio Position Sizing – This position sizing model is a bit more complicated and relies on a key variable called “delta” to determine position size. Essentially “delta” is the dollar amount per contract required to increase the position size by 1.
Fixed Risk Position Sizing – With this strategy, a trader would determine trade size based on the risk of trading a specific currency pair. Typically with this model, the key component is volatility. You would take smaller positions in higher volatility pairs, while taking larger positions in lower volatility pairs.
Margin
Margin tends to be a somewhat misunderstood concept by many newer traders. Basically, margin is a deposit provided by the trader to their broker which acts as collateral for holding an open position in the market.
The concept of margin may be better understood thru an example. Standard lots for Currency pairs are typically traded in 100,000 currency units. So if the broker has set a margin requirement of 1%, then the trader will need to deposit at least $ 1000 with the broker for the privilege of trading 1 standard lot. If the position moves against the trader, and the trader’s account falls to less than $ 1000, then the broker will initiate what is called a margin call, wherein, the trader would either need to deposit additional funds in the account to cover the minimum margin requirement or be forced to close out the open position.
The concept of leverage is closely tied to margin. Essentially leverage allows a trader to control larger units than they would be able to otherwise. Using the same example above, a trader that has deposited $ 1000 in their account, and wants to put on a standard 1 lot position in the EUR/USD which would equate to 100,000 units, would be utilizing 100:1 leverage on the position.
Traders use leverage as a means to magnify their potential gains on a trade. But as most experienced traders know, leverage is a double edged sword and can also act to magnify potential losses on a trade as well.
Currency Pairs
There are three major groups of currency pairs within the FX market – Majors, Minors, and Exotics. We will highlight each group below:
Major FX pairs – The major currency pairs include the US dollar and a currency of another major economy. Major currency pairs are the most liquid and also offer the lowest dealing spreads. The list of major currency pairs includes: EURUSD, USDJPY, GBPUSD, USDCHF, USDCAD, AUDUSD, and NZDUSD. The most popular currency pair to trade is the EURUSD, and as such EUR USD trading signals are quite common.
Minor FX pairs – These pairs consist of currencies from two major economies but does not include the US dollar. Many minor FX pairs are also referred to as major crosses. The list of Minor FX pairs includes: EURCHF, EURGBP, EURCAD, EURAUD, EURNZD, EURJPY, GBPJPY, CHFJPY, CADJPY, AUDJPY, and NZDJPY. Though not as liquid as the major FX pairs, minor FX pairs offer traders sufficient liquidity and reasonable spreads to make them attractive trading instruments.
Exotic FX pairs – Exotic currency pairs usually consist of a currency pair from a major economy coupled with a currency pair from a developing economy. Exotic currency pairs can be quite volatile and tend to be much risker pairs to trade. An additional disadvantage of trading exotic pairs is that they normally have very wide bid ask spreads, which makes them unsuitable for day trading or swing trading.
**Most reliable forex signals providers will limit their forex trading signals to the Major and Minor pairs. There are more than enough opportunities in these currencies and as such it is unnecessary to get involved in risker exotic currency pairs.
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Reading Signals
In order to make the best use of a reliable forex signal service, a user must first understand what a common forex signal looks like. Below are the most important components of a forex trade alert:
Currency Pair – This is the currency pair for which the fx trade alert is being issued.
Long/Short – This will provide you the direction for the trade. Go long is equivalent to buying, while going short is equivalent to selling.
Entry Price – This is the specified price for entering a trade. The entry price is typically a market order, limit order, or stop order.
Stop Loss Price – This is the specified price for exiting the trade when the price moves contrary to your intended direction. Stop loss orders protect you from incurring additional losses on your trade.
Target Price – This is the take profit price. Sometimes a signal provider may only issue 1 take profit price, and other times they may issue multiple take profit levels.
Once you understand how to read the issued forex signal alert, you should make sure that the signal meets your pre-defined risk parameters and make other relevant considerations per your trading plan before acting on or executing a trade.
Trade Management
For most traders, the hardest part of trading is in managing the trade once you are in a position. Most traders are comfortable with their entry technique but tend to be horrible when it comes to exits.
One of the reasons for this is that the moment that we are in a trade, all objectively will go out the window. This seems hard to believe but it is absolutely true. And this is precisely the reason that some traders will lose money regularly even when they are taking good setups. They let their emotions get out of hand, and begin making decisions from the hip rather than following their prescribed trading plan.
One of the best way to overcome this is to do your analysis and place a target and stop loss in the market the moment you enter a trade. This is when you will be the most objective, so its best to take advantage of that.
Many successful forex signal providers tend to follow this rule as well. Rather than leaving the exit decision for a future time, they will do a full analysis prior to sending out a trade alert, and include the target and stop loss as well within the issued alert. This is considered a “Set and Forget” method of trade management and many consistently profitable traders have found this to be an excellent way to keep emotions out of the picture and focus on making the very best trading decisions.
Demo vs Real
A common question among those who are interested in signing up with a forex signal provider is whether they should start with a Demo Account or start directly with a Live Trading Account. Each individual trader will have to answer that question for themselves based on their own risk appetite and comfort level.
Some FX Signal providers provide a detailed performance page with their track record. Although you cannot rely exclusively on this, it would be a good starting point from which to decide the best route for you to take. Often times it is a good idea to sign up for a trial with the Signal provider and start with a demo account or preferably a small live account and see how closely your performance correlates to the signal providers performance page.
There are some caveats with demo trading that a new trader should be aware of. Below are some drawbacks with trading with a Demo account.
Demo accounts often have limited durations.
Conditions in Real Trading will often differ from Demo trading
You may not get a proper sense of slippage and order execution.
Demo spreads may differ from live spreads.
You may not use the same leverage in Demo that you may use in a Live account.
Since real money is not on the line, your emotional reactions will be very different in a demo vs live environment.
There is nothing certain when it comes to trading the markets. You cannot control what the market will do when you are in a position. The only thing that you can control is your risk and exposure in the market.
Serious forex traders and top signal providers realize the primary role of a trader is to manage and mitigate risk at all times. Control you risk and you may be able to live to trade another day. Ignore risk and it is a certainty that you will eventually blow up your account.
Risk Management
So, regardless of how good an FX signal provider is at spotting high probability trading opportunities, it is ultimately your job to manage your account from the standpoint of risk management and position sizing. It always pays to err on the side of being conservative than on the side of being overly aggressive.
There are many things you can do to mitigate your risk in the market. The most obvious and arguably the most effective is by placing a hard stop on your trade, and not overriding it under any circumstance. If you can learn to be disciplined in just this one aspect of trading, you will be miles ahead of the retail trading public.
The second way to limit your risk is to only trade with a reasonable amount of leverage. Do not use excessive leverage, as this is a sure fire way to the poor house.
Be wary of any FX signal provider that inflates their forex trading signals performance based on high leverage amounts or does not provide a suggestion for placing a stop loss with their issued trade alert.
Psychology
There is no doubt that having a winning mindset is essential to making consistent profits in the FX market. Experienced traders know that they must be in the right frame of mind when trading, otherwise they risk making bad decisions that will inevitably lead to trading errors.
Those that follow a reliable signal provider are not immune from the emotions that can affect a trader’s psyche. So it is important to know when you are straying from the right mindset and check yourself from time to time.
The two main psychological tendencies that can hold a trader back is Fear and Greed.
Fear causes us to second guess ourselves and close positions prematurely. The fearful trader is unwilling to act on the basis of logic but rather is so intimidated or consumed by potential adverse events that they become counterproductive to themselves.
Greed is at the other end of the spectrum. When greed kicks in, a trader become overly optimistic and convince themselves that they know more than the market, and that nothing can and will go wrong. They start to smell the money, and as a result begin to use excessive leverage and overtrade. This usually leads to an unexpected turn of events that causes the trader to eventually check their ego and reflect on their arrogant behavior in the market.
Avoiding Scams
Although there are some very reputable forex signal providers in the marketplace, they are not always easy to find. Traders seeking out a professional forex signals service would be advised to do the proper research to ensure that the provider that they are considering is genuine and is serving their subscribers in a transparent manner.
One of the best ways to avoid forex signal scams is by using some good old fashion common sense. If something looks too good to be true, then it likely is too good to be true.
Here are a few things to look out for:
The FX signal provider does not show a performance record – They state that their service is profitable but do not back that up with any type of track record or proof.
The Signal provider is boosting 80-90+ percent win rates – Although these providers may not be outright scammers, they are typically taking on huge amounts for risk and targeting very small gains to achieve this type of win rate. This engineered win rate misleads unsuspecting users into signing up for their service, which is just a disaster waiting to happen.
The signal provider claims that their strategy is fool-proof or that they guarantee a certain amount of pips per week or per month. Or they guarantee X% returns per year. The reality is that no one can guarantee anything in the markets, and you should steer clear of any signal provider or service that makes such blatantly false and misleading claims.
Be wary of any FX signal provider that minimizes or downplays the risks involved in currency trading. Though you can make very healthy profits trading the forex markets, it is not without risk and you should only trade with money that you can afford to lose.
Check to make sure that the service you are looking to buy forex signals from does not have a negative reputation online. Sometimes you might be able to go online and read some of the forex signal providers reviews. But, unfortunately, you have to be careful when doing this, as some of the forex signals review sites are prone to have a bunch of fake reviews on them.
Staying Disciplined
Many traders struggle with staying disciplined in their trading business. Its not enough follow the most accurate forex signals provider or trading system. Though that can certainly help, it is not by itself the magic bullet. It takes more than that, it takes discipline and the right frame of mind to stick with your strategy.
But many traders give up too quickly and do not give a strategy or system enough time for the odds to play out. They tend to bail at the very first signs of a drawdown. Then they go searching for the next thing that they believe will provide them the riches that they seek. This becomes an endless cycle that leads only to frustration. So, whether you are following a signal provider, using a trading system, or have a discretionary methodology of your own, you must learn to be patient and give the strategy a chance.
Here’s a quote from the legendary trader Richard Dennis that should put a clearer light on the importance of discipline in trading.
“I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”
-Richard Dennis
Holy Grail
Too many individuals come into the forex market and treat it as a get rich quick scheme. They are looking for a fool proof trading system that will generate them triple digit returns every few months or so. This is just unrealistic and this illusion only leads many to become disappointed when they do not become millionaires trading forex after a short span of time.
Just think about it for a moment. The best hedge funds in the world, equipped with the brightest minds in the world, and with an endless pot of cash are not able are find anything close to a holy grail trading strategy or system. And they are smart enough that they do not look for one either, as they have long ago realized that none exists. The focus needs to be on having an Edge in the market and applying that edge over a long series of trades to produce a profitable result.
So for those that are looking to a trading system or a signal provider to provide them with risk free trading signals, they are likely to be disappointed. Have realistic expectations from your own trading or from the services of a reputable signal provider. One of the hardest things in trading is to stick with a strategy even when it is losing money at times, but this is essential, otherwise, you will only continue spinning your wheels and not getting anywhere.
Growing An Account
Now that you understand that there is no holy grail or fool proof trading strategy, I would like to introduce you to the next best thing – Compound Interest. But don’t just take my word for it. Here’s a quote from one of the brightest minds in human history:
“Compound interest is the greatest mathematical discovery of all time” — Albert Einstein
The best, most effective way to grow a small account into a large account is by using the power of compounding to our advantage. Most newbie traders are so consumed with trying to find a perfect system, which does not exist, that they simply overlook the massive effects that the power of compounding can have even on a relatively average trading strategy.
Here is a hypothetical example of what the growth of a trading account would look like based on the following assumptions:
Starting Capital : $ 5,000
Annual Addition : $ 0
Avg Monthly Gain: 4 %
Year to Grow: 10 years
The result? Take a look below:
Account Size after 10 years: $ 602,721
Thats an astonishing 12,000% compound return over 10 years. And that was on a trading strategy that was averaging 48% per year, which is achievable in the FX market if you have a good trading strategy and use reasonable leverage.
But keep in mind that the point of this example is to open your eyes to the power of compounding and not to say in any way that you will have this exact result.
Essentially, you want to forget about searching for a fool proof system and rather focus on trading with a good strategy or follow a reputable fx signal provider, concentrating on risk management, and try to use the power of compounding to grow your small account into a large one.
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Part Time Trader
There are many different ways for those interested in the forex markets to get involved. You may have a full time job already, and are only looking to the forex markets to try to make some supplemental income, or you may be trying to transition from a part time trader to a full time trader.
Whatever your situation and goals may be, it is important that those that are new to the markets should start on a part time basis, and learn the mechanics of trading either thru intensive study or find a mentor or trading signal service that can help them thru the process.
There is a myth that the more you trade, the more money you can make in the markets, and as such many newbie traders tend to gravitate towards active day trading. The truth of the matter is that your best chances for success as a trader is by trading higher timeframes.
The transaction costs involved and patterns that emerge on the 4 hour, 8 hour, and daily charts are far more favorable than those on the 5, 10, or 15 minute chart. And this should be music to your ears if you are a part time trader. You do not need to sit in front of the screen all day as a trader, and in fact, as I just mentioned you are better off not doing so.
Whether you are using a trading strategy that you have created or use a forex signal service for additional guidance, you are generally better off doing your chart analysis on these higher timeframes, and then putting your orders in the market, including your stop loss and target price and then just stepping away, letting the market do the rest, and getting on with the rest of your day.