Reading FOREX signals
One of the disadvantages of FOREX trading is the time investment needed to monitor the markets for advantageous entry and exit points. It's possible to sit in front of a computer monitor for hours watching the markets.
Of course, you can use automated orders such as limits and stops.
These allow you to walk away from your computer with the knowledge that your losses will be kept to a minimum, but by doing so, you may miss out on potential profits because your limit order kicks in too soon.
If you don't have the time to watch your computer monitor and still wish to achieve as much profit as possible, consider signing up for a FOREX signal service. These services monitor and analyze the market for you and send their findings directly to your computer desktop, email, or SMS on your cell phone or pager.
Companies that offer FOREX signals or alerts do so on a paid basis, so you have to sign up and pay a monthly or yearly fee. Some brokers may offer this service as an extra which integrates into their trading software. You can receive signals as a popup on your screen or by any of the other methods described above.
There are usually a limited number of currency pairs that are available for FOREX trade signals. Most services offer signals on EUR/USD, USD/JPY, GBP/USD, USD/CHF, but specialized services may offer other currency pairs.
FOREX alerts are primarily based on technical analysis of market conditions. Most companies use a combination of indicators to identify main trends and entry and exit points. The results are sent to subscribers who have the option of acting on them or passing. Some services will even execute the trade for you.
Using a variety of technical studies, various types of signals can be derived from currency charts. The SMA (Simple Moving Average) indicates buy signals when currency prices rise above the average line. Sell signals occur when the price falls below the moving average line.
MACD (Moving Average Convergence Divergence) studies have a signal line that is used to generate a buy signal (above the line) or a sell signal (below the line).
Volume indicators are used to determine market interest. High volume (especially near the bottom of the market) can indicate the start of a new trend while low volume indicates investor uncertainty.
Bollinger Bands indicate potential changes in the market. Sharp price changes tend to occur when the bands tighten while prices that touch one band tend to go all the way to the other band.
Other indicators like volatility and momentum can be used to reinforce signals provided by other sources. Taken together they form a relatively reliable source of information about how the market is behaving.
Are signals a sure thing? Of course not, otherwise we would all be millionaires. FOREX trade signals can give you good advice about which currencies to trade, but no signal service will guarantee their information is 100% accurate. Reputable services will show you their track record, however, and let you see for yourself how they have done in the past.
FOREX trading signals cost anywhere from $50 to $200 or more a month. It's up to the individual trader to decide if the cost is worth it. Don't think that signals can take the place of trader education – they are advice, and if you don't have the knowledge to analyze the advice, you should go back to the books before using a signal service.