Trading Signals: Do You Need Them?

By: Diana O.
In forex trading, many of the transactions you perform are dependent on market trends and how the market behaves. This is why in order to survive and make use of your presence in the forex trading market, trading signals are exchanged. These signals help investors, traders and brokers to observe the market, assess its performance and make sound decisions.

What are forex trading signals?

Forex trading signals are tips and recommendations about whether to buy or sell or liquidate given by a third party. This party could be your broker, trader, analyst, brokerage company, etc. The signal can be a single indicator or a group of indicators, including breakouts, envelope patterns, stochastic lines, Fibonacci levels, oscillators, currency pairs that are almost at moving averages and support and resistance levels, among others. Forex trading signals can vary depending on the source and they also follow certain market patterns and trends, depending on the demand and supply of the world's major currencies.

Since there are many indicators to watch out for, it is important for many investors to rely on more experienced forex brokers for reliable trading signals.

Of course, the more seasoned investors can always try to get a feel of the market by themselves just by watching the trends, but there are so many indicators that it's sometimes a lot easier to rely on trading signal services. Besides, trading signal providers have to perform detailed study of the markets and make technical analyses of whatever operating forces come into play, something that many investors don't have the time for.

Where are trading signals derived from?

The currency chart is one of the sources for technical studies and market analysis that lead to trading signals. They include:

Simple Moving Average (SMA) – when the moving average line is surpassed by currency prices, this is a buy signal. If the price goes below the average line, it's a sell signal.

Moving Average Convergence Divergence (MACD) – uses a single line to indicate a buy or sell signal, depending on whether the line is above or below the average line.

Bollinger Bands – these point to possible market changes. When Bollinger bands tighten, you can expect prices to change sharply.

Volume – a high volume may signal a new trend. A low volume means uncertain times ahead for investors.

There are other indicators such as momentum and volatility that are often used to help reinforce trading signals obtained from many other sources. If you study them in relation to one another, you'll have a pretty much reliable information source on the behavior of the market.

What kind of currencies is being offered by trading signal services? Most forex signal services offer trading signals on USD/JPY, EUR/USD, USD/CHF and GBP/USD. However, there are also services that provide specialization in other minor currency pairs.

Is the service for free?

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