It seems like everyone is talking about trading signals lately. The good, the bad, and the ugly are all being thrown about and your head is spinning from it all. But you still want to research the idea to learn more about the pros and cons of using them.
This one will help you tackle the topic of trading signals, answer questions you may have and orientate you in the right direction. In this article, you will learn what trading signals are and how they work.
More importantly, you will understand the pros and cons of using them to make a better informed decision. Also, if you stick around to the end, you’ll be able to try a trading signals service for free.
OK, never mind!
Let’s just get straight in to it.
Trading signals, the pros and cons of using them
If you are reading this article, you are probably a beginner or not that experienced in trading. Maybe you have tried trading without much success, and still believe there is money to be made in the markets.
Possibly none of those, but you are wondering whether trading signals will be of any help to you.
Well, it depends and before we get to that, it’s best to start at the beginning and build up to the pros and cons of using them. Then you can decide for yourself!
What are trading signals?
Trading signals are a way for you to get an alert from the market or when an analyst believes that the market is going to move in a certain direction. You would get the former from analysing the market yourself and the latter would come from someone else.
These people can become signal providers; there are many out there who invest a huge amount of time and money trying to get you to subscribe to their signal service.
Some trading signal services are free, while others other are paid for but they are not all made equal. They can be good, they can be bad and some are just ugly.
How do trading signals work?
Trading signals are just indicators, they indicate an opportunity in the market and you have to decide whether to place the trade. On top of that, you have to decide on your risk and trade management.
The point is that the signals alone won’t transform your trading; trading strategies have many moving parts. But that is for another topic, lets focus on the actual trading signals and how they are generated.
They are typically generated in two ways using two methods of analysis.
Trading signals from technical analysis
Technical analysis can be used to generate buy or sell signals and these trading signals are generated from looking at price movements on charts.
These buy or sell trading signals can be generated by studying price consolidations, trends, support & resistance levels and many other chart patterns.
Although technical analysis is not an exact science, it can give you a good idea of what the market is likely to do and when it’s going to do it.
A technical analyst tries to identify this from these patterns as they’re occurring, then makes trading decisions based on this information.
Trading signals from fundamental analysis
Fundamental analysis is the other most commonly used method to generate trading signals. It relies on aspects of the market that are not related to the price action or charts.
This type of analysis studies things like a company’s assets, liabilities, profits, and growth potential when stocks are involved. For Forex trading, its things like interest rates, gross domestic product, employment data and retail sales.
Fundamental analysts try to predict how those factors will affect prices in the future. With a goal to find assets that have high or low prices relative to their intrinsic value, and look for opportunities to trade back to that level.
Manually produced signals
A manual trading signal is given by a person who has actually observed and studied the asset. Someone will undertake the technical analysis and visually inspect the charts. Then asses the fundamentals, compare the two types of analysis and give the signal to buy or sell.
Automatically produced signals
Automated trading signals are a type of signal produced from software, following an algorithm. When the predetermined set of criteria is met, it executes trades or outputs a trading signal without any further human input.
There are also hybrid trading signals, which are a combination of both manually produced and automatically produced signals. Some traders and signal service’s use both to help them trade. However, the main benefit of using automated signals is to remove emotions from trading and put the execution on auto-pilot.
Usually, a computer will do all the work or someone else will to provide you with the signal.
Receiving the signals
When all the stars are aligned and depending on the method of communication the trading signal provider is using, you can expect to receive an alert. If the service is fully automated, the trade will just be executed in your trading account.
In any case, you will win some and lose some but it’s up to you to decide what to do!
For signals that don’t have automatic execution, you will probably miss some too.
The Pros and Cons of using trading signals
Here are some of the main benefits of using trading signals produced by other people and what makes them so appealing.
Saves you time – The main advantage of using trading signals produced by other people is that you can take advantage of their experience. As well as all the other resources they may have invested to analyse the market.
If you have done your due diligence and like their historical results, all you have to do is follow their instructions and use the same strategies for yourself. Past performance is not an indication of future results.
They can potentially make you money – They aren’t guaranteed to make you money, but they can be very useful if they are coming from someone with experience and a demonstrable track record of performance.
Alerts you to new ideas – Trading signals can be a very good source of information for those who are interested in them. Another advantage is that you do not need to think about what to do next.
Using trading signals allows you to focus on trading, while a lot of the work has already been done for you.
An alternative source of information – The signal provider may update you regularly, based on the latest developments in the market. Sometimes these updates contain more than just buy or sell recommendations and you might receive some justification for the trades as well.
These market updates can summarize what is happening, keep you informed and you can learn as you go.
There are also some drawbacks to using trading signals produced by other people. Here are the main ones that can make them unappealing.
You can lose money – When you use trading signals, know they don’t come with any guarantee to make money. You could lose all of your investment if you decide to follow them. There are lots of signal providers on the Internet and its possible they are worse at trading than you are.
They can cost you money – These signals aren’t free for the most part, someone is spending their time and money to produce them and market them to you.
If you are trading with small amounts and paying a relatively high price for the signal service, you might not even cover these costs from trading.
You have to trust them – It’s easy to go online, find a service and start using it without really knowing anything about the provider. Are they reputable? Are they any good? These are just a couple of questions to enter your mind when you’re trying to decide whether or not to use a service.
Then when you receive them, you have to use them consistently.
You don’t develop any skills – You might think that if someone else is doing all the work for you, you don’t have to. All you have to do is sit back and execute on their trading signals. Other than becoming reliant on someone else, you won’t develop your own trading skills.
Especially when they don’t come with any analysis, just an instruction to buy or sell.
Are they worth it
If you are trading in the financial markets, you’re probably always going to be looking for ways to improve your performance. It might mean educating yourself, improving your trading strategy, and even using trading signals.
Trying to find a service that will work for you can be a long and difficult process and things are not always as they seem. You may not always get what you pay for either, so make sure you do your due diligence.
Whether they are worth it depends on who is providing the signals and the quality of their track record, then how you execute them.
You can check these things before you commit, then weigh it up against the costs. If the likelihood is that you won’t recoup the costs because of the amounts you intend to trade with, then you can consider passing.
With that said, if they come with some analysis so you can learn something, then they might be worth a shot. Just be prepared to chalk up any losses and consider that as a cost towards your education.
Trading signals are like any other tool in the sense that some tools are good quality and other tools are bad quality. Some help you create good things while others don’t help at all, the outcome can potentially make and lose you money.
No trading tool will work for everyone all of the time and trading signals are no exception. Furthermore, markets and conditions change, so you may have stumbled upon a good service only to start using them at an unfavorable time.
Ultimately, they can only be worth it if you are getting some form of value out of using them.
Where to get free trading signals from
It can be easy to get caught up in all the hype surrounding trading signals, but you can only do your due diligence and try them.
If you decide to go ahead, you should use them over a sufficient number of trades to establish if they work but have realistic expectations. The TIO Signals app is one tool provided by TIOmarkets that you can try.
You can learn how to use the TIO Signals app here.
Each signal comes with a preferred scenario, an alternative scenario, potential profit objectives and a likely place to put a stop loss. There are also some additional comments about why the signal was published too.
The signals are generated by Trading Central and you will receive alerts for every symbol that is available for trading on the TIOmarkets platform.
The app is available to download to your smartphone and you can try it for free. The free version is limited to a few signals daily but you can unlock all the trading signals by funding your trading account with at least $500. There are no other ongoing fees.
Conclusion: Trade with signals or trade without signals
With trading signals, you don’t have to know everything about trading in the financial markets to get involved.
Remember that they are just a tool! Trading is very challenging but with study, practice and time, you will gain experience. Using a service to help you along the way is worth checking out.
Alternatively, you can use your own trading methods and continue to refine your approach.
You will get tight spreads and $0 commission on the VIP Black Account, which is TIOmarkets flagship account type.
Begin that journey by opening a trading account here.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.