What Is Forex Signal Trading?

Jack Prot

Designing a forex signal trading system requires technical analysis of market indicators, statistics or trends. Without a forex system, a trader tends to let his/her emotions get in the way. Forex signals are used to take the “emotion” out of the equation.

A new trader can design his own forex signal trading system after getting some education and practicing with a “demo” account. Most websites with trading platforms offer daily newsletters which they post on their sites or send to the traders e-mail address. These newsletters are generally from a professional trader, broker or market analyst and can prove very helpful, whether the trader has a forex system or not. The ultimate goal, of course, is to make successful (profitable) trades by using all available information.

The type of forex trading signal or strategy that a trader uses depends largely on the type of trades that he/she is interested in making. There are short, medium and long-term traders and each have advantages and disadvantages.

A short term or day trader capitalizes on very small changes in rates that they expect to happen each day. The forex system for the short term trader will focus on the study of daily charts, indicators and even time of day. A long term trader needs large amounts of capital to cover daily fluctuations and his forex system will focus on long-term fundamental factors. A long-term forex trading system will be quite different from a short term forex trading system and the indicators that signal each to make a trade will be quite different.

The majority of traders fall in the medium term trader category. These traders have the least risk and generally need less capital than the other types, but their trading opportunities are limited. Forex signal trading for the medium term trader involves all of the indicators used by the day trader and the use of additional indicators and studies to find the best entry and exit points. Generally the more indicators used in a forex system, the more reliable the system should be, but fewer trades will meet the traders criteria.

There is an enormous amount of information available on the web to help new traders design a forex system. There are seminars, newsletters written by pros that include entry and exit signal points, free charts, and much more. There are chat rooms and blogs to get an idea of what current traders are doing and to hear about their successes and failures. Reports say that 90-95% of all new traders will lose their initial investment in the three to six months following their first trade. To reduce that risk, new traders must educate, practice and use forex signal trading to take the emotion out of the equation.

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