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.
Forex Signals & Forex Signal Services
Emotional? Get ready to lose your shirt in the forex game!
“Go with your gut.”
Yeah right. That’s advice to doom you at the currency exchange game.
When it comes to forex trading, that’s a trading strategy that is bound to lose you money - unless your gut is highly trained and impervious to emotion. The trick to making money in the currency exchange market is to avoid making emotional decisions and follow a carefully thought out strategy that takes the current market and history into account.
Forex trading is a highly volatile market. Emotions tend to run high - and low - and either of those extremes can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you THINK you’re seeing at the moment. The keys to success in Forex are system, analysis and perseverance. Note that emotion is not one of them. Going with your gut is a losing proposition in forex trading.
Letting your emotions rule your decisions can hurt your trading in several different ways. It’s the reason that most experienced traders tell novice traders that they need to develop a system - and stick to it no matter what. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system even when you want to fly in the face of accumulated data, you’ll maximize your profits.
A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you’re just getting started in forex trading - and many traders with years of experience continue to use their system to keep the profits rolling in. In fact, many will tell you that when their ‘gut instinct’ and their system collide, the system is almost always right.
The third key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line - there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you’re holding takes a sudden dip south, it’s tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it’s easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.
Using a mechanical system takes the emotion out of your trading, eliminating one of the key factors that people fail. Your system doesn’t get stubborn about proving a theory. It isn’t swayed by bad news, or elated by good news. It doesn’t hold onto a bad trade hoping against hope that if it just holds on long enough, the trend will turn around and become a moneymaker.
To be effective, your system - whether you develop your own or adopt one created by someone else - should identify the entry point of your trade, the exit point of your trade, mitigating factors, and an exit strategy. In laymen’s terms that means:
- Under what conditions should I acquire a currency? For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that’s likely to be as low as it goes.
- Under what conditions should I trade that currency for another - and which one? There are two reasons to exit - to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point to cash out your trade.
- What factors will I allow to change that decision? If you’re not careful, this is where emotion will sour deals for you. While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you’ve taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it’s just wishful thinking.
- How will I trade out of a currency? Your exit strategy may be as simple as ‘a stop-loss order when my loss hits 5% or a take-profit order when I’ll make 40% profit’.
By employing a system to tell you when to get in, out or stick, you’ll minimize the impact of your emotions on your trading and maximize your profit.
Don’t try to explain a fundamental event with technical analysis.
This week we are seeing some small reversals in some of the currency pairs, particularly the USD and JPY pairs. The main reason for this is the upcoming G7 meeting this weekend in Washington DC. This meeting is for the financial representatives of the largest economies in the world, the same countries whose currencies we trade. Typically at these meetings, currency values are discussed. Most of the time it is the Japanese Yen weakness, but this time it may include the US Dollar weakness too. This increases the risk of holding short positions in either currency, which to professional traders means unknown risk and a reason to get out of their trade. So the recent JPY and USD strength is more because of traders exiting positions rather than putting on new positions. If all goes well, they may come back into the market after the meeting and sell the JPY and the USD, but time will tell on that one. However, I am seeing new traders trying to find a technical reason for the reversal. There may be a couple of indicators that showed the possibility of the reversal, but this move has nothing to do with technical analysis. It is a pure fundamental move. Technical analysis does not tell us how traders will react to the fundamentals of the market. They never have and they never will. Tops and bottoms in the financial markets are determined by the fundamentals while technical analysis shows us how we get between those two points. Let my repeat that….tops and bottoms are determined by the fundamentals of the market and not the technicals. Instead of looking at a number of technical indicators to determine the end of a trend, you would be better off checking the economic calendar available at www.dailyfx.com. Big events that result in a change in the interest rate environment or monetary policy are what will change trends, not the fact that the RSI is overbought or oversold. This explains why traders who use both styles of analysis usually have better trading results than those who concentrate on just one aspect. You don’t have to understand why the market is moving the way it is, but knowing that traders are concerned about an upcoming economic release or another event like the G7 meeting can explain current market movement. But we won’t know the extent of the reversal until we know more about the results of G7 meeting and how traders interpret those results.
Get smaller or get out.
Many times I get asked by new traders how to handle a certain situation they find themselves in when trading. These traders may have opened five or six mini lots in a trade and have seen the market move in their direction. But now the market starts to move sideways or even move against them and they ask for help in what to do. My first question to them is what their plan was before entering the trade. You know….before you had money on the line and could think clearly. First of all, if you are asking somebody else what you should do, this usually means that you have lost your way. When you have lost your way, the decisions you make are based on emotions rather than solid analysis. This is what can get you into trouble almost every time. When in this situation, there are two options….get smaller or get out. If you don’t know whether you are still bullish or bearish on your current trade, you should no longer be in that trade so you should get out. If you still want to be in the trade, but feel uncomfortable with the risk, you should get smaller. This means closing part of, but not all of your position. Naturally, if you only opened one lot, this is not an option. But if you have multiple lots open, there is no rule that states that you have to close them all out at the same time. Closing part of the position locks in some of the profit. If you move your protective stop on the remaining position up to the breakeven level, which means moving it up to your entry, you are in the enviable position of having guaranteed a profit on the trade while still being able to further profit on a continuation of the move. That is good trading.
Australian Dollar Approaches Parity
Over the last few months, the Australian Dollar has risen over 15% against the USD, bringing the currency to a 23-year high. With parity (1:1 exchange rate) in sight, some analysts are beginning to draw parallels between the Australian Dollar and the Canadian Dollar, which skyrocketed to parity against the USD just last month. Both economies are rich in natural resources, relying heavily on them to drive exports. In fact, more than half of Australia's exports are comprised of natural resources. It is no surprise that as oil, gold, and a host of other raw materials have surged to record highs, the Australian economy has outperformed even the rosiest of expectations. With China's economic boom promising to keep raw material prices high for the near future, the prospects for Australia's economy, and hence its currency, are brighter than ever.
What’s more, the basic divergence in growth is clearly tipping towards the momentum underlying the Aussie economy with consumer spending, business investment and export income promising strength for the economy and currency in the months to come.
Emerging Currencies at Risk
Most of the world's emerging economies link their currencies to either the Dollar, the Euro or a basket of currencies, through an outright peg or a so-called "dirty float." These countries have attracted waves of foreign money, with the intent of buying cheap exports, foreign direct investment, and capital/forex market speculation. As a result, while the upside of these pegs has been seemingly boundless economic growth, the downside has been inflation, since many of these countries have been forced to print money in exchange for foreign currency. Countries in the Middle East, Asia, and Eastern Europe, especially, have effected tremendous increases in their respective money supplies with double-digit inflation rates to match. Many savvy investors, namely hedge funds, have begun to target countries with fixed exchange rates that are suffering high rates of inflation, with the reasoning that it is inevitable such currencies will soon be forced into appreciation. The Telegraph reports:
Further east, Vietnam is throwing in the towel as inflation hits 9pc. It said it will no longer hold down the dong by massive purchases of US bonds. Singapore, Taiwan, and Korea have begun to change tack, slowing dollar accumulation before inflation gets out of control.
