Signals are all around us. There are sound signals of cars, colours of traffic lights, messages on the scoreboard of the station or signs in the subway. A signal is a notification that prompts us to do something. For example, you call your friend and wave to him – it will be a signal that you are nearby and want to say hello.
Many signals platforms offer their clients an additional service in the form of signal delivery. In addition to brokers, well-known platforms offer their trading signals. Someone provides trading signals for free, someone for a fee.
What is a deal signal?
It is simply information about when for which financial instrument and in which direction a position should be opened. It is understood that the provider of deal signals conducts a serious analysis of the market, on the basis of which it issues data.
What are the deal signals for?
If you find a perfect signal provider, such as a professional trader who has been trading steadily for several years, then his signals can be very useful. By working on such signals, you can make a profit.
However, in this case, it will not be enough for you to just accurately and consistently follow the signals you receive. In addition, it is mandatory to strictly adhere to a certain system of money management. After all, no matter how accurate the signals you receive are, you should always have a certain margin of safety.
Under the margin of safety, I mean not only the amount of trading capital, but also the percentage of risk that is laid on each concluded transaction.
Agree, it’s one thing to risk half of your deposit in each transaction, and quite another to mortgage 2-5% of it. In the first case, you will be eliminated from the game after two bad deals in a row, and in the second – you will be able to experience a string of failures from a dozen unprofitable positions relatively calmly.
Are there accurate signals?
What is the accuracy in trading? In fact, the whole process of exchange trading is built on forecasts, and the forecast, whatever one may say, cannot be accurate in all 100% of cases. However, a 60/40 ratio (where 60% of profitable trades, 40% of unprofitable ones) will be considered a good accuracy for any trader.
Signals of sufficient accuracy certainly exist, but it is quite difficult to find a supplier of such signals. In addition, even after finding such a supplier, you should be prepared for the fact that about half of all trades recommended by him will eventually turn out to be unprofitable.
You should also be prepared for the fact that at one fine moment a whole series of losing trades will follow. And of course, you should always have a so-called emergency exit plan in place.
However, one should keep in mind the fact that if the signals are delivered to you by an excellent and experienced specialist, then for stable earnings on them, it will be enough only to manage your trading capital.
An experienced trader, as a rule, always gets out of losses and therefore jumping off the train ahead of time, you risk missing out on a number of really profitable trades. So here you need to find a compromise. The more reason you have to trust the signal source, the further you can push the emergency exit boundary. In contrast, if your source of trading signals has not yet earned a certain degree of trust, then you need to “leap” from it without waiting for strong drawdowns.
A good option would be to pre-test the received signals. At the same time, you need to test not a day or two, but so much time to make a statistically reliable picture.
Automatic and manual trading by signals
You can trade on signals in automatic and manual mode. Automatic mode implies the installation of special software that receives signals from the selected supplier and opens the corresponding positions without your participation. You may only be required to initially adjust the program to an acceptable level of risk (determine the size of open positions in accordance with your money management strategy).
Manual mode assumes that you receive a signal personally, and then decide whether to open a position on it. Manual mode may involve certain analytics of trading signals.
Although fully automatic trading frees a specialist from a number of routine actions, it also has a number of disadvantages.
There are such as:
- failures due to a poor Internet connection or an accidental disconnection;
- failures due to equipment failure.
In artificial intelligence, deal alerts will help any company quickly change problematic moments.
Analytics of deal signals
Receiving this or that signal, you have the opportunity to analyse it from the point of view of technical and fundamental analysis. This kind of analysis will help you filter out bad signals.
By getting your hands not only on signals, but on strategy itself, you become independent of the source.
Paid or free signals
There are many paid and free signals to sell. Free ones may be inaccurate. Paid ones provide experience, a clear mechanism, and advanced software.
Therefore, you need to understand what the company wants: a long and successful business, where employees will receive useful information and make the right decisions or short-term benefits.
Can the signals be trusted?
There is a funny story on this subject that happened in the west in the last century. One person has amassed a customer base of 100 companies. After that, he sent them free forecasts for the shares of company X (signals). Moreover, in one-half of the forecasts, he promised a rise in prices and advised to buy these shares, and in the other, on the contrary, he promised a decrease and advised to sell. After some time, one of the scenarios was embodied in reality (shares either grew or fell in price). Then the person threw the addresses of those companies to which he sent the wrong forecast, and the remaining specialists (who received the right forecast) he again divided into two groups and repeated everything again.
Thus, as a result of these manipulations, he eventually had the addresses of several companies that received only accurate forecasts. Then he offered them to buy another forecast for serious money (because it is worth it, the previous recommendations turned out to be correct!). It is clear that this last forecast was taken for nothing again.
Should you use signals?
So should you use signals or not? Everyone has their own answer to this question. Many people use signals for convenience reasons. It is a good opportunity to receive fresh data that will help in the development of the business.
Possible trade threats, changing sales figures, revenue indicators, various decrees to achieve the goals – the software will cope with it, where the necessary data will be displayed in one place.
The signal is just an indicator, and even if it is correct at a certain point in time, there is no guarantee that some unforeseen circumstances will not occur at the next moment. For example, a pandemic of a new disease will begin, the authorities will adopt new economic counter-sanctions, or an accident will occur at the factory and the manufacturer will suddenly stop producing products. In the end, under the guise of signals, the “guru” can sell you not a signal at all, but with a smart look and a bunch of complex terms, just pointing to the sky. He may also misinterpret them. In short, you should be on your guard and not rush to give money to just anyone.
Signals differ in several parameters depending on the type of market. The commodity is the signals that occur seasonally, for example, they show a price increase of fuel in winter. Currency is the ones that often come in connection with news from large banks or the world market. Stock is the signals that appear during the reporting period and indicate the purchase of shares. Cryptocurrency – notify about the establishment of a suitable price level or hype around the asset.