About SignalsWhat Are Trade Signals?
Traders who are new to the world of trading can find help by subscribing to trade signals sent out by signal providers who are sometimes experienced traders.
Subscribing to trade signals can yield profitable results if youchoose the right signal service provider. They often involve short-term trading,i.e. closing trades within the same day.
What is a signal?
Trading signals are "suggestions" about potential investment opportunities that is sent to the trader in real time, so that he can open trade without actually following or analyzing the market.
The signal alerts the trader usually by providing the following information:
- Type of asset (currency, raw material, index, or stock)
- Direction (Long or Short)
- Opening price (approximate price in which tradeshould be opened)
- Target price (closing price to be set forTake profit and stop lossorders)
This information allows the trader know exactly what to do. Upon signal’s receipt, he just needs to enter the input values and open a position/s.
If the signals are short term, it’s best to copy the signal as soon as it’s received: the longer we wait, the lesser the value of the signal. It’s better to verifythat the price did not undergo abrupt movements but remained close to the opening price indicated before opening the trade.
How do we receive the signals?
There are many waysin which traders can receive the signals:
- Viaasignal service provider/vendor's web platform.
- Viamobile Apps or SMS.
- Via Skype (closed groups created by the vendor/signal service provider).
- Other web chat programs.
The systems are potentially all valid: it’s up to the trader to understand which one is best for him/her.
Who generates the signal?
Signals can be generated by professional traders or software (commonly known as robots).
Signals from softwareare generated automatically by inputs on certain patterns (a well-designed/defined strategy) but often don’t take into account the economic daily news, therefore if important news comes out just after the opening of the trade, trading will be inevitably risky.
The signals provided by professional traders are considered to be the best option as they take into accounts both news and the market mood. On the other hand, professional traders don’t follow different strategies on multiple assets; therefore the number of signals is more limited than with software, which can send a much larger number of assets.
the Analyst's answerJean Grossett - Financial analyst
It is easy to get excited when you view the equity curve of a signal service provider. The providers’ equity curve is important, but not the most useful metric for measuring the reliability of signals from a provider/vendor. The most important metrics are the maximum adverse excursion and the maximum drawdown of the strategy on a particular account. The maximum adverse excursion also known as MAE measures how far a signal stays in a negative zone before it closes in profit. Some strategies that generate certain signals may look good from a surface value of their equity curve, but under the hood may have a poor MAE, making them very risky in the long run. Looking into the drawdown and MAE of a strategy as a risk metric, in combination with good money management will help in filtering out signal providers.
The signal service on the MetaTrader terminal and website incorporate some money management features, by allowing the subscriber specify his allowable drawdown level. If your signal service provider enters a trade with a higher lot size due to larger capital compared to yours, the lot size is automatically scaled down to your own capital and risk tolerance specified by the subscriber. This and much more are the features on this service.