By Danny Vescio Forex signal services come in many shapes and sizes. Some provide you with a detailed market analysis, either fundamental or technical, and charge you a fee for their buy and sell recommendations. Others will simply tell you when to buy and sell based on some system of analysis that is unknown to you (black-box system). A very popular extension of the latter is automated execution of signals.
Keep in mind that some people cannot bear the idea of accepting signals unless they understand fully what goes into them. If this is you, then you will never be able to follow the signals with any kind of lasting discipline. Just be honest up front with yourself! If you can, then keep reading because there is profit to be made if done properly.
The main selling point many of these signal services throw at you (albeit unspoken) is that they represent an opportunity to earn a significant income with very little effort on the trader's part. Just-take-our-signals-and-watch-the-money-roll-in type thing!!! Something for nothing, basically.
Sure they charge you a fee but given the failure rate of new traders, most would gladly pay that fee thinking they're better off letting the "experts" tell them what to do.
Of course life isn't really that easy, now is it? If it were, everyone would be living it up like big rock stars, living on hilltops and driving 15 cars (hey, isn't that a song?). Consider:
1. Many signal providers are pure scams. They show you all kinds of stellar back-tested results to lure you in, but then can't deliver the goods and eventually drop off the face of the earth. Be wary of providers that don't offer free demos or of those guaranteeing results or providing lousy customer service.
2. Many newer traders see these kinds of services as a substitute for solid education. Those who don't have the time or motivation to acquire effective trading habits opt for signal providers. These traders ultimately fail because they don't understand key trading principles, like risk management and proper mind-set.
3. Traders fail to understand that even good signal providers will have to endure losing streaks. When a trader is faced with one, they immediately begin to question the legitimacy of the system, throw their discipline out the window and either cherry pick signals or begin jumping from provider to provider.
So, is there money to be made then? ABSOLUTELY! Consider these tips:
1. Do not take back-tested results at face value. Question everything and dig deep to try and determine if they are a trustworthy service. Don't start out with the expectation of making a killing but rather, start out trying to establish their credibility. Test the service out on a demo first for a month or two. If they don't offer free demos then it is likely they are worthless.
2. Risk very small amounts. When it comes time for you to place your hard-earned money on the line, tread carefully. Risking small amounts of your account on any individual trade is the best way to go before you are certain they're right for you.
3. Ensure live trading makes sense statistically when compared to performance claims. I won't get into too many details on this but just know that spectacular back testing results could either be a complete fabrication or a result of over optimization. Having an appreciation for statistical probabilities is helpful when you're trading because it allows you to ask the right questions. For example, if performance claims suggest the system is 80% accurate yet you find yourself enduring 10 consecutive losses, you know something is off.
4. Have a money management plan and observe it with discipline. This includes being capitalized enough for the type of trading the signals represent. For example, if your plan suggests that you can use 50 pip stops at most but the signals are using 80-pip stops, then you are undercapitalized.
5. Do not look at profits in isolation. Consider how much drawdown you are willing to stomach in order to achieve your profit goal. Earning 3000 pips a year is great but not at the expense of a 5000 pip drawdown, for example.
6. Focus on providers that have longer histories. Ideally this should include real-time trading results and not just back-tested results.
7. Use a signal provider in conjunction with on-going education efforts. There is nothing wrong with making money through signal providers until you are confident enough with your own skills. This should always be the goal. To forever count on someone else to lead you to riches is foolish. Signal providers can also play a part in your overall approach, but take your own education very seriously.
In conclusion, take all these guidelines seriously enough and it's likely that you'd be eliminating most signal providers from your radar.
Visit my blog to find out which signal provider, in my opinion, fits the bill! http://wannatradecurrency.blogspot.com/2008/09/automated-forex-trading.html Danny Vescio has been an active currency trader for the last several years. He enjoys writing about a variety of topics but his passion is the currency market and passing on his knowledge of currency trading to newer traders. Visit his comprehensive blog at http://wannatradecurrency.blogspot.com to learn what it really takes to become successful trading forex. Topics are organized chronologically to make your learning curve as seamless and focused as possible. |
