Prices in Forex trading are the most volatile - violent
even - of any investment type. They change further and
quicker (typically) than shares, bonds and even commodities
(though commodities can be pretty hair raising too!) This
presents non day traders with a problem - As you can't sit
by a screen all day looking for price shifts in real time
you risk (a) Losing bigtime on your open trades and/or (b)
Not getting into new really hot ones. But there is a
solution - You use signals and a signal service.
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 system incorporates built-in
algorithmic rules that use the formulas of technical
analysis, aggregates it with current market data and
produces a 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 above the line, sell when it falls 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 help the investor make
better decisions about when to buy or sell 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
therefore, their signals, are worth anything is a learning
experience all its own.
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! He runs
http://www.forex-master-trader.info which promotes a system
called Forex Trend Trader and offers a free Forex for
Beginners email course.
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