Forex Trading – An Introduction to using Signals as Trading Tools

Forex prices are the most unpredictable of any type of investment. They shift further and faster (commonly) than bonds, equities and even commodities (though they can be madly zig-zag too!) This gives non day traders a tricky problem – As you can’t watch prices all day you risk losing badly on open trades or not getting into good short window opportunities. The answer? – Use signals and signal services.Forex signals are buy and sell indicators based on technical analysis. Technical analysis uses historical price and volume data to statistically analyze trends. The aim is to zero in, with a explicit probability, the odds of future price movements.A signal may be as simple as ‘Buy euros now at 1.1901′. Those signals are presented in any number of ways, by email, SMS text message to a mobile phone, IM message etc. Some are simply flashing text and/or icons on trading software. The software integrates built-in algorithmic rule sets that use technical analysis formulas and aggregate that data with current market data to produce a trade signal.For instance, one generally practiced technical indicator is something called MACD (Moving Average Convergence/Divergence). Without getting in particulars here, it uses the moving average – the change in an average price over time. A signal can be returned when the value of MACD crosses above (or below) a pre-determined threshold. Buy when it moves up over the line, then sell when it crosses below.Some signal services allow clients to automate the process of Forex trading even further. You can leave standing orders that when a certain signal is generated, carry out the recommendation. You get an email recommending ‘Buy euros now at 1.1901′ and the broker automatically enters an order to do just that.As with any investment instrument, it has to be used intelligently in order to avoid disasters. Entirely automating your buys and sells can amount to automatically losing money. Using a signal service can make your life easier, but never abandon your investments entirely to an automated service.If you plan to do that, you may as well simply turn your investments over to a broker with the instruction: ‘Maximize my returns, but keep the risk down to a reasonable level’. Sensible, but not helpful if you want to control your destiny.Signal services are definitely useful, however. They can relieve investors of the need to continually monitor prices. They can simplify the sometimes bewildering complexity of charts. They can aid the investor make more informed decisions about when to sell or buy and at what price.All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.But, buyer beware. There are dozens of firms that will be happy to take your money. Whether their analysis, and as a result, their signals, are worth anything is an educational experience in its own right.At minimum, investors should use order types that help control risk. Stop-loss orders, limit orders and other common types are an essential means of limiting losses and timing buy and sell orders. That technique, commonly employed in stock trading, is even more critical in the volatile world of Forex.—From London, Nick now lives in Stockholm with wife Lena and Gunnar a Border Terrier. He likes long forest and lakes walks, is learning Swedish and loves making money from investments that are as cunning as a fox and go up even when the markets go down! If you’re thinking about trying your hand at extracting profit from the murky forex depths then he suggest you start small and simple. See Commodities Futures for info on an easy start low investment trading platform

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