What are Forex signals? Forex signals are paid services offered by some brokers and independent Forex annalists. Companies that offer forex signals monitor and analyze the market for you, providing you with their data via desktop alerts, email or even SMS and pager alerts.

Forex signal services analyze several factors when preparing their data. They do a technical analysis of market conditions and use a combination of indicators to identify trends and isolate profitable entry and exit points. They then send you the results via the venue of your choice and you can choose to use the signal in your own trading, or pass on it.

Most forex signal services offer signals for only a handful of the most popular currency pairs, such as EUR/USD, USD/JPY, GBP/USD, USD/CHF. Occasionally, you can find specialty services that offer signals for other lesser traded pairs. Forex signals can be costly, even upwards of $100 / mth. The benefit of subscribing to such a service is that they analyze and crunch the data for you, saving you time. It should be noted, however that using a signal service is no substitute for a proper education in the Forex markets. Signal services give you data, you still need to know what to do with it.

When shopping for a signal service, make sure that they provide you with historical data so that you can see their track record for yourself. Remember, that like any trader, Forex signal services also have loosing trades. You shouldn’t expect a signal service to be a sure ticket to instant Forex wealth, but rather look at them as another tool in your trading toolbox.
Author: Amber Lowery

Cut your losses short and let your profits run. This is the essence of your trade exit rules.

Cutting losses short

A protective stop protects your trading capital, it is your initial trade risk. Before a trade is even entered your should know where your protective stop will be – this is your maximum loss (barring any slippage on the exit). There are many different ways to determine a protective stop on a trade:

Set dollar amount – Say $500 on every trade

Percentage retracement – Say 10% from the entry price

Volatility – A percentage of the average true range of the previous x bars

Moving Averages – the opposite of the moving average entry

Channel breakouts – the opposite of the channel breakout entry

Based on areas of support and resistance stops

Time – If a position is not in profit after a certain length of time then it is exited.

Letting profits run

An effective exit technique is also required to allow a successful trade to make the most profit possible and give back the least amount of it.

Usually a trailing stop is employed to achieve this objective. A trailing stop moves to lock in profits as the trade moves in the traders favour, it should never be moved backwards. There are many different ways to calculate a trailing stop:

Volatility – the stop is calculated as a percentage of the average true range of x periods.

Dollar – A set amount determined before the trade is entered.

channel breakout – exit a long position at the low of the last x bars.

moving average

chart patterns – ie move the trailing stop behind each consolidation as it forms.

Other forms of exit are:

Time Stops – A trade is exited after a certain length of time no mater what. A day trader, for example, will always exit at the market close.

Targets – A limit order is placed to exit a position at a pre-defined profit objective. However this tends to break the rule of letting profits run and usually reduces the profitability of a system by cutting short the best trades.
Author: Tim Wreford

Most traders tend to concentrate on pinpointing the perfect entry for a trade. However, in reality the entry price is just one part of the equation. The common entry techniques are:

Channel Breakouts

A trend trader will tend to use channel breakouts to enter trades in order to catch a trend when it is beginning. The general rule is to pick a period length, which could be 20 days for a long term trader or 15 minutes for a daytrader and buy if the high in that period is broken or sell if the low is broken.

Visual Entry based on patterns

The art of technical analysis focuses on the many types of chart patterns that markets tend to form. Such as gaps, spikes, inside days, outside days, triangles, flags and double tops to name a few. These entries are rather more subjective than channel breakouts.

Pure prediction

Prediction techniques include Elliott Wave, Gann and Dow Theory. Again the actual entry price based on such theories is very subjective. Predictive techniques usually try to pin point major turning points in markets and are therefore attempting to go against the current trend rather than with it.

Volatility Breakouts

The theory behind a volatility breakout is that if the market makes a sudden move in a particular direction then it is likely to continue in that direction. The general rule is to add/subtract a pre-determined percentage of the recent average true range to the opening price thus giving buy and sell points.

Moving Averages

Take the average price of the last x periods (minutes, hours or days) and buy if the price crosses above and sell if it crosses below. This technique works well in purely trending markets but will be badly whipsawed in a range bound market. Variations include using 2 or more moving averages and using the cross of those as a signal. The moving averages themselves could be simple or weighted (more emphasise on the latest prices).

Oscillators and Stochastics

I.e. RSI, stochastics, Williams %R etc. Generally these tools are used to determine whether the market is ‘overbought’ and ready to drop or ‘oversold’ and ready to rise. They work best in range bound markets by picking tops and bottoms but fail in a trending market.

Author: Tim Wreford

The foreign exchange currency market is the largest market in the world because it trades up to $1.9 trillion daily. There is an enormous scope of trade in Forex because it is global, and is open twenty-four hours a day, making the presence of buyers and sellers constant, and the fluidity of the market, grand. The market is ever present because it does not have a central venue like Wall Street or Tokyo. It is a series of internet and telephone communications between buyers and sellers and it is not overseen by any one main authority like the Securities and Exchange Commission. The Forex is made available to traders through platforms.

Traders of Forex commonly favor Forex trading systems. Forex trading systems are methods of trading currency based on ideas that have rules associated with them. Forex trading systems are a merging of theory and practice that have been tried and tested over and over, and the results of the tests have been documented.

Some Forex trading systems are based on the idea of going against trends. Other Forex trading systems are based on the idea of going with trends. Some Forex trading systems are based on the idea of tracking breakouts of a particular currency and these Forex trading systems rely heavily on the averages of a currency’s highs and lows, and utilize “Bollinger bands” that track the average highs, the average lows and the moving average of the two.

Traders utilize Forex trading systems in order to work against human characteristics that can hamper trading, like greed, addiction, impulsivity, compulsivity and fear.
Author: Kevin Anderson

Long Term

Long term traders will work from end of day data and look to hold trades for a few weeks up to many months. Usually trend trading.

Advantages

No need to watch the markets intraday.

Fewer transactions means lower commission costs.

Cost of equipment and data is minimal.

Disadvantages

Large equity swings on single positions with large stops.

Usually only 1 or 2 exceptional trades a year so patience is essential.

Bigger capitalization required to ride longer term swings.

Frequent losing months.

Short Term

Working from intraday data and looking to hold for a day up to a week. Usually swing trading.

Advantages

More opportunities for trades.

Less chance of losing months.

Less reliance on one or two trades a year to make money.

Disadvantages

Transaction costs will be higher.

Intraday data adds to costs.

Overnight risk becomes a factor.

Day Trading

Working from intraday data the day trader will attempt to take small profits from intraday swings. All positions will be exited at the market close.

Advantages

Many trading opportunities in a day.

Much lower chance of losing months.

No overnight risk.

Reduced margin requirements due to no overnight risk.

Disadvantages

Transaction costs will be high.
Psychologically more difficult due to frequency of trading.
Profits are limited by needing to exit at the end of the day.
Data costs are high as real time data is essential.

Author: Tim Wreford