There are literally thousands of strategies and methods for trading forex and numerous trading signal providers to choose from. Depending on whether you want to trade mechanically, automatically or manually will influence your decision as to which may be best suited for your trading. Automated trading includes software robots which are designed to enter and exit positions without requiring the trader to actively execute the trade. Although these systems can be effective, many traders prefer a more manual approach to trading and do this either mechanically with the use of a forex signal service. Mechanical trading relies of the trader entering and exiting each position after their system or strategy provides them with the signals. Trading with a signal service is similar to this although the trader may not necessarily know of how or why the signals have been generated and essentially enters the trade ‘blind’ with only the entry and exit known.
Using a forex signal service
Although traders frequently are unaware of the system or method behind many forex signals services, this can be beneficial in preventing “analysis paralysis” and reduce the anxiety associated with such over-analysis. However, as a long-term solution to forex trading the use of a signals service is less sustainable and most traders prefer to learn and execute their own methods of trading without having to rely on such a service. In order to develop the skills to trade autonomously, forex traders need to recognise their own trading signals which will very much depend on the type of trader they are and their preferred trading style.
Confirming the trading signal
For all traders, the confirmation of a trading signal is essential to increase the probability of a profitable trade. This confirmation supports the initial trading signal and many successful forex traders will wait for several additional signals to provide confluence before entering a position. For technical traders, this can be in the form of indicators such as an oscillator at either of its extremes or showing divergence with the current price. For price-action traders who prefer not to use any indicators but instead to look for price to react near key areas of support and resistance they may rely on candlestick analysis as their primary trading signal. Although there are a number of effective ways to interpret trading signals, perhaps the most important factor in common with all of these is the requirement for at least one further reinforcing signal.
Timeframes are important for spotting forex signals
Forex trading signals occur on all timeframes but it is good to bear in mind that the lower timeframes, such as the 5 and 1 minute charts are likely to generate many more signals than the hourly or daily charts. Although the signals of any method are likely to be less on the larger timeframes it is for this reason that they can be considered more reliable. This reinforces the importance of filtering the multiple opportunities that may be seen on the lower timeframes so that only those with the highest probability of success are actively traded.
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