How Forex Signals Really Work

Forex signals are used by many traders and investors. We will cover how forex signals work , how to trade forex signals, the different types of signals and whether any profit can be made. You may see how the trading signals we have sending for over 6 years work.

Live forex signals, which are real time signals are extremely popular in 2020. You may have came across free signals and premium forex signals. Rather then suggesting which is better, at the end of the day it is the signal service that generates profit and provides you with the most updates.

It is important to understand how to read and trade signals. Forex signals work by providing traders with a buy or sell trade on a currency pair or cross. The buy or sell signal also includes the price to place the trade, stop loss, take profit and more.

How Forex Signals Work

what forex signals look like and how they work

We have gathered for you the most superficial signals in the Forex market and broke it down into several parts for a greater understanding. It is important to understand how forex signals if you wish to use them.

Signal Entry Price

It is the price the trade should be executed. ‘At market price’ often refers to current price of the instrument. For example. if GBPUSD is trading at 1.1620 and the entry is at market price then trade should be opened at the price GBPUSD is currently trading at.

Some signals use an entry order such as a sell limit order (sell at a predetermined higher market price) or buy limit order (buy a at a lower predetermined price). For example, if GBPUSD is trading at 1.1620, a sell limit order may be any price above 1.1620 such as 1.1640 while a buy limit order is any price below 1.1620.

Signal Stop Loss

A stop loss order is the price where the trader wishes to close the trade with a loss as the market went against the open position. For example, if a buy GBPUSD trade was opened, a stop loss of 70 pips means should GBPUSD decline by 70 pips the trade will be automatically closed.

It is the anticipated loss of the trade in an event the price will head in the opposite direction of the trade.

Signal Take Profit

The opposite of a stop loss, the take profit is the expected profit (in pips) the trader would like the trade to automatically close. For example, if the trader sold GBPUSD at 1.1620 and the take profit is at 1.1600, the trade will automatically close when GBPUSD reaches 1.1600, which is a +20 pips profit.

For more experienced traders we chose not to dive into the spread in our examples (bid and ask).

The above is the most standard form of a forex signal, we will discuss later on how more detailed forex signals work on a more professional level.

Types of Signals and How Are They Sent

types of signals and how are they sentThe signals are sent in many methods. In recent years some signals are sent via telegram, WhatsApp, emails, text messages (SMS), Facebook, twitter and others social media.

There is no one superior method but in our opinion signals that are sent via SMS are outdated as many own smartphones in 2020. Some websites list the signals on their page and the trader must visit the website to view the signals.

Forex Signals Types

Some signals are based on short time frames what is commonly referred to as intraday signals. The time frames may be range from 5min – 60min. The expected profit is often between 10 – 50 pips per trade.

Swing forex signals are based on longer duration such as the daily chart. The expected profit tends to exceed 120 pips, some times even as much as 300 pips in volatile crosses.

The third type is scalping. Scalping requires some automation or manged account (which we will shortly discuss) and the trader aims to profit anywhere between 2 pips to 10 pips.

Good Signals Vs Poor Signals

good forex signals

Some forex signals services split take profit order into three. For example, lets say a long (buy) EURUSD signal at market price was sent:

EURUSD price: 1.1260

Stop loss: 1.1160 (100 pips stop loss)

Take profit A: 1.1270 (10 pips profit)

Take profit B: 1.1300 (30 pips profit)

Take profit C: 1.1380 (110 pips profit)

When you receive such a signal you will have to choose which take profit to set. You can open 3 EURUSD long (buy) positions with different take profits. Three trades will demand you to move the stops as the trade progresses, a trailing stop will not eliminate the need to monitor the trades.

The signal provider did not intend for you to open 3 different positions. It is an easier approach to show profits. If for example EURUSD reached take profit A and then reversed to trigger the stop loss (100 pips loss) the signal provider will claim a +10 pips profit as A was obtained.

Legit forex signals are likely to have one take profit and adjust it or exit the trade earlier if required. The profit from the signals will then reflect in its true form.

There are services of automated signals where the performance is calculated and presented automatically. Unfortunately, scammers found loopholes in such systems as well but we will not discuss them in this article. Automated signals will prefer scalping as it increases their personal revenue.

Good Quality Signals

Higher quality signals will provide greater depth. For example:

  • Estimated Duration

How long do they expect to have the trade open. It may be as little as 30 minutes as long as 14 days for example. Knowing how long the trade is expected to remain is important in certain scenarios.

  • Potential Drawdown

What is the potential drawdown of the trade. For example, lets say the stop is 100 pips. The potential drawdown may be a re-test of the resistance / support level, which for example may be 40 pips. Stops are often based above resistance levels or beneath support levels.

  • Technical stops

Some forex signals services used fixed stops such as 400 pips for example. A stop has to be calculated based on the chart, which means the size of the stop will vary from signal to signal. The same applies with take profits.

  • Long-Term Performance

The signals’ track record must be for at least 3 years to demonstrate the ability to recover from losses, even long-term losses.

  • Open Drawdown

Similar to the size of the stops we mentioned, some services use large stops in an effort to avoid losses. This means drawdown for weeks and possibly months. Good forex signals services accept losses and move to the next trade.

  • The Time Frames

On what time frame is the signal based, 5 minutes, 15 minutes, daily chart, weekly chart etc. The time frame often determines the duration of the trade and the potential profit. The long time frame the higher the expected profit.

In ddmarkets we also provide the trade setup for the signal, which is favored by experienced traders. For example, see on of the signals we sent prior to the US elections in 2016.

You may also see a more indepth review of accurate forex signals.

Can You Trade Signals and Start Earning Money?

How Forex Signals Really Work

It is possible to trade signals and make money, yes. Risk management is important as any forex signal service may have consecutive profits as well as consecutive losses. It is also important to understand that money may not be made as soon as you start receiving signals.

We at ddmarkets do our best to be as clear as possible with our signals, we provided a table that displays how many pips must be made from the trading signals per trade size in order to cover the costs in forex signals pricing.

Beware of Scammers!

Not all forex signal services are legitimate. There are several signs that may reveal potential scammers.

  • There is no performance or the performance that is displayed shows only profits.
  • Claiming a high success rate such as 95%.
  • Guaranteeing a certain amount of profit in real money or pips every month

There are profitable forex signals services, some perform better than others. A trading signal may come in many forms, the least popular method is SMS in our opinion. We at ddmarkets began our forex signals in 2014, presenting the trading strategy for the trades on the website.

If you are looking for forex signals please see our pricing and the benefits of using our trades.