What are trading signals?
Whenever an individual is trading any type of asset – anything from stocks to cryptocurrencies – we must look for anything that can trigger an action. An action is to either buy or sell, based on either fundamental and/or technical analysis. As traders, we must look for these action triggers to determine the best time to buy or sell.
These triggers are referred to as trading signals. Trading signals can be developed from a great variety of sources such as basic earnings reports or even other trading signals. Most commonly, technical analysis is the biggest source of trading signal generation – technical data and the reading of candlestick charts can reveal potential triggers. However, fundamental analysis can also be helpful in determining a trading signal, as well as measurements of market sentiment too.
Successful trading decisions are devoid of any emotion and observing trading signals is a means of allowing traders to mechanically make trading decisions. Trading signals can be incredibly complex, but it is best to go for as little inputs as possible, such as using a signal generator.
Other uses of trading signals
Trading signals are not just used to simply buy and sell an asset. They can also be used to modify an existing portfolio by using signals to determine if it is a good idea to buy from one sector and then sell from another. Trading signals are commonly used by bond traders who can use those signals to adjust the duration of their portfolios. This is done by using trading signals to sell a maturity and then buy a different one. Advanced traders also use trading signals to assist in asset class allocation.
The 4 types of trading signals
Trading signals are based on a variety of strategies and each aim to achieve something different – be it buying cryptocurrency hoping to sell it for even more later or trying to sell on price action reversals. You can break down trading signals into four distinct types.
Momentum signals should be familiar to anyone with some training in technical analysis. These trading signals are based on market strength and involve receiving an indication that the market is going to move strongly. Traders will then buy quickly and sell shortly after. This is very much a short-term trading signal and is common with bull markets.
Another signal that has particular use in strong bull markets. Especially markets where indexes break all-time highs. This trading signal is based on 52-week highs or all-time highs, and the aim is to catch the period in which price movement may double or hopefully even triple over either weeks or months.
Not all trading signals are short-term. Trend signals are based on long-term analysis such as a 200-day moving average. The trading signal will be looking for triggers to enter long or short buys and definitely work best on the higher and lower end of market directions.
Overload trading signals are all about creating a risk/reward ratio that is based on buying a big dip in the historical price range. We’re talking about long-term price support or even an overload oscillator such as the 30 Relative Strength Index (RSI). You’ll probably hear the term “buying the dip” in free trading signal forums about this signal.
How to create a trading signal
To develop a trading signal, traders can choose from an endless supply of possible inputs. However, at the end of the day most traders are simply trying to automate their thought process and simplify their trading. A trading signal proposal could be as simple as, “buy stock when prices move above a certain moving average”.
Unsurprisingly, there are some pretty common inputs used by the vast majority of traders. Traders may even combine inputs to achieve a more specific goal and traders may remove inputs over time too. It is important to understand these common inputs, as they offer the best chance of success when creating trading signals for seeking the right triggers for action.
Common trading signal inputs
Move average – the moving average cross is an input where traders wish to take action when the price of an asset crosses either above or below the average trading price. There are many common moving averages such as the 200-day moving average.
Volume surge – a significant surge in the trading volume of an asset can often be evidence of a new shift in the market. This trading input could trigger an early buy as an asset begins to pick up steam. It can also be an indicator to sell and get out early as volumes decline.
Technical patterns – this is your bread and butter of trading. Charts and patterns give excellent insights into price movements and market sentiments. A common trading signal input is to set up around a breakout such where the trading price begins to climb. The advantage here is that there is a near endless supply of charting options to determine price and strength.
Volatility – There are so many ways to measure market volatility and a trading signal can be created to trigger action upon high or low volatility. Large changes in volatility can often be a great indicator of an impending market change. For example, cryptocurrencies are an asset that can undo a trading signal very quickly.
Other inputs for trading signal creation
While not as common, these inputs are also regularly used to create trading signals but are equally as important.
Wild sentiment changes – Excessive buying in a particular sector may imply market topping, while abnormal selling may imply a market bottom. Trading signals can be used to take action on these wild sentiment extremes and take serious advantage.
Valuation – A bit of fundamental analysis on this input. Sell signals can be identified by inputs seeking excessively high valuations when compared to other assets within that market or sector.
Interest rates – setting up a trading signal for interest rate changes can be highly beneficial, especially in the commodity and stock markets which can change dramatically with changes in interest rates.
Cycles – Markets have a tendency to flow in commonly spotted cycles. Seasonal cycles are the most common and signals can be created to trigger action during one such cycle.
Create a trading signal in 5 easy steps
Using your chosen trading platform such as MetaTrader 4, or an in-house designed application, you can create your own trading signals with relative ease. Here are the 5 steps for simple trading signal creation.
- Choose the type of signal you are aiming for.
- Determine which components or inputs you will be drawing from.
- Set the rules that will determine when you expect price movements to change.
- Test your trading signal. This could be on a free demo account or with basic paper trading.
- If you are pleased with the results. Go ahead and use your free trading signal of your own creation.
It takes some genuine knowledge of technical analysis to create trading signals and most experienced traders start developing signals as a means of finding support for sentiments they have found through their typical research.
Considerations for trading signals
We, at TradersBest, understand that there are a great many factors that go into creating or choosing a trading signal. There are some considerations that need to be made to ensure you select or create the right trading signal for your needs. Without these key considerations your trading signal may fail or not work as well as it should have. According to our experts at TradersBest, these are the most important considerations for a quality trading signal.
Trial & error
There may be a little bit of trial and error to getting the right trading signals for your goals. This is acceptable for practicing trading strategies and signals on a free trading account, but not for your live trading. Applying a trial-and-error methodology to finding your trading signals will just result in a pointless trading system that curve-fits to data from the past.
You’ll need to meet a certain criterion when setting up a trading signal. This should typically include things like objectives, stop losses, the initial entry trigger, and exit points. There’s no point developing the greatest entry signal ever if you have no goals or exit strategy. All trading signals need to have a risk management strategy too – as in a stop loss and a take profit order.
Research, Research, Research
There is so much benefit from really lasering in on your objectives and completing some quality research yourself. If you can operate a hypothesis-based trading system – that is using trading signals to try and find support for your market beliefs – you can really enjoy the benefits of trading signals. You’ll see greater clarity on your objectives, much less development time, and a better real-time profitability.
Use a demo account
It is always best to test your trading signals first. Just going live could spell disaster if you don’t know for certain that the free or paid trading signal is of high quality. The best way to do this is by using a free demo trading account. That way you can be sure the signals include accurate and relevant stop losses, exit points and more.
Benefits of trading signals
With so many ways to trade online, why should you choose to use trading signals? We’ve compiled a few of the biggest benefits to using trading signals – either self-created or from a trusted trading signals service – that showcase their immense worth to any individual’s trading strategy.
- Trading signals significantly help with the finding of trading opportunities in areas that the trader may not actually be looking for.
- You can add additional trading ideas to your watchlist with a simple trading signal.
- Time is precise and trading signals automate research thereby freeing up time for traders.
- Trading signals can be used to confirm your own research, further adding strength to your trading decisions.
How to find the best trading signal service
One of the best ways to find high quality trading signal services is through the use of guides and insider knowledge such as that found at TradersBest. If you are a beginner to the world of trading and financial markets, then TradersBest trading signal guides can really help with the technical details.
One of the best things about trading signals is that they can be delivered through so many channels. Considering that trading signals are, in essence, small text-based products, they can be transmitted via text, email, or even an app like Telegram. You can find plenty of lists of excellent trading signal services at TradersBest.
Best trading signal provider
At TradersBest, we have some of the world’s best trading experts at our disposal. They scour the planet in search of the best trading signal providers online and have chosen the very best provider of premium and free trading signals. Without any doubt, we at TradersBest, think FXgrowth is the best trading signal provider available online.
FXgrowth provides investors with 5 to 15 trading signals per day and are focused on high-speed performance. Signals can be delivered over several different platforms including, Telegram, text message, the dedicated mobile app, or simply via email. The automated trading strategies merge perfectly with advanced trading platforms like MetaTrader 4 or 5 and are incredibly easy to use. With a success rate of 70%, FX growth is our TradersBest choice for the best trading signal provider.
Trading signals are an advanced means for traders to automate their trading systems and confirm their own research into chosen markets and assets. While experienced traders may choose to create their own signals using a trading system, in 2021, it couldn’t be easier to receive premium and free trading signals online.
Traders benefit from more time, the ability to confirm their ideas on market valuations and sentiments and assist in precise timing of quality trades. You can receive free trading signals on almost any device by using FXgrowth.com. Whether an experienced trader or just starting out, trading signals are an important tool for successful trading in multiple markets and asset types.
Trading signals FAQ
⚙ Can I create my own trading signals?
There are many different factors that influence how a trading signal is created and there are considerations that can alter the effectiveness of any trading signal. Trading signals are generated by considering these factors and meeting a set criterion made of trading goals. When all these factors are met a trading signal can be created.
📊 Are there different types of trading signals?
Trading signals can be used to determine all sorts of market movements, sentiments and action triggers. There are endless possibilities to how a trading signal can be devised and how many inputs may be used. With multiple trading goals or objectives comes a need to use different types of trading signals.
⚖ Are trading signals free?
Trading signals can be delivered in many different ways and obtained from multiple sources across from around the world. Traders may choose to obtain multiple trading signals to suit their needs and there are services that deal in high quality trading signals for a price or for free.
✅ How do I know a trading signal is effective?
There are so many possible trading signals available to the retail investor and so many factors that can determine its effectiveness. Traders will naturally need to check that their obtained trading signal is actually legitimate and will provide a high chance of success. Thankfully, there are a great number of methods to check the effectiveness of any trading signal. We recommend heading to Traders Best for advice on ensuring a quality trading signal.
⁉ How reliable are trading signals?
Forex trading signal providers are judged by their win/loss ratio and the best providers will publish their success rates. There are a few parameters that a trader can use to measure the quality of performance of trading signals. Trades can go even further with their research by digging into the trustworthiness and reliability of the forex signal provider themselves.