What are forex trading signals?

When it comes to the hyper-competitive realm of forex trading, it’s pretty clear that every investor is looking for an “edge”. While what actually constitutes an “edge” is routinely debated, there is no denying that many traders invest large amounts of time into forex trading signals. Ranking as one of the most important tools that any forex trader can have within his or her trading arsenal, forex trading signals can help you stay one step ahead of the market.

For those who currently aren’t in the know, a forex trading signal by definition is a trigger for entering a trade on a set currency pair at a set time or price. At heart, it represents an emerging pattern in the market and a trigger to trade, rather than it being an automated process (although this is a route that many do choose to go down). Either a dedicated analyst or an automated Forex robot usually generates the signal, with it being relayed to a forex signal service subscriber. Due to the need for instant, to-the-second information, the large majority are issued through email, EA’s, RSS, SMS, or live feed.

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Now with the basics of a forex trading signal explained, it’s time to get to grips with the general types you need to master to further understand the market and avoid common pitfalls.

1. Buy Signals

As you now know, forex signals are going to be your trigger to make a move in the market. The most common relates to buying or selling a particular currency, so let’s look at the former to start. Buy signals are intended to indicate that one currency is worth buying over another, with it set to rise in value upon a forthcoming event or condition. This type is so common to the point that it tends to come in a variety of sub-forms, such as “Buy” and “Strong Buy”. One of these cropping up indicates it’s the right time to acquire the currency listed, so get ready to make a more or less immediate move.

2. Sell Signals

In a total swing away from its counterpart, sell signals indicate the reverse and are just as common. When a currency is performing poorly or is set to take a downturn, you are likely to see such a signal. The reasons behind one may be fundamental or analytical, but whatever the circumstances, it usually acts as a pretty strong indication that you should look to drop a certain currency sooner rather than later.

3. Volume Signals

When large amounts of a certain currency are being pulled in one direction or another, you may find a volume signal being issued. When one is in effect, it draws you into the market and forces you to take a closer a look at why the movement is taking place, along with addressing its impact on your forex trading portfolio. Unlike a buy or sell signal, a volume signal is not a direct call to action, but what it may do is indicate a current market trend that you need to make a decision upon.

4. Momentum Signals

It can be argued that the forex market is driven by economic shifts and associated momentum. As such is the case, when momentum related forex trading signals are issued, it pays to listen closely, as they may act an indicator for the shape the market is about to take. Momentum signals are largely based upon the buying strength of one particular currency. Should one appear, you can determine it’s worth keeping an eye on the listed currency, which may be on the brink of an upswing.

Conclusion

Investors from the world over use forex trading signals, and there is a good reason for that. These signals help investors make decisions, especially during times when critical thinking is of the utmost importance. Whether you opt to head down the automated signal-trading route, which is becoming increasingly common, or opt to act on forex trading signals manually, they should, without any doubt, make up a key element within your approach to the forex market to help you trade more successfully.

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