Trading signals are tools that are used by traders as a way of identifying when opportunities arise to buy or sell. They arrive as manual suggestions or automated alerts that advise you of the changing market conditions. If you’re looking to start trading stocks or other assets, this is an approach worth considering once you’ve read our guide on How to Start Trading Stocks for Beginners.
Signals trading can be carried out by assisting manual strategies where the trader acts on the information received. Alternatively, automated decision-making through AI and algorithmic systems that implement the trades on your behalf. In this guide, we’ll be looking at what signals are in trading and how you can learn to trade signals responsibly, although you shouldn’t take this as being financial advice.
What Are Trading Signals and Why Do They Matter?
There are several reasons why traders rely on trade signals. They provide a way to carry out trading with the emotional bias that can lead to poor decisions. When you learn to trade signals, you rely on data and automated decision-making to avoid this being an issue.
The data-driven insights also help to save time in the decision-making process by feeding all the relevant information into the trader’s account. This reduces the need to carry out extensive research into the market by only bringing up the most relevant data and recommending or carrying out potential actions. In what markets are signals in trading used? They function well in forex, crypto, and stocks, among others.
How Do Trade Signals Work? Key Components Explained
To better understand how signals trading works, we need to look more closely at how they’re generated. Each signal is based on a series of technical indicators that are used to assess the current market conditions and potential future movements.
Algorithms are used to automate the process of filtering the information to make a decision on which trading signals to use. A comprehensive news analysis approach ensures that all of the latest factors that could affect the direction of the market are taken into account.
Each trading signal includes various elements, such as the entry price, the exit price, and the stop-loss figure. This is everything that a trader needs to know to complete the recommended trade.
Not all trading signals are the same, though, as different types are used to focus on the various types of trading that are possible. This means that you could receive the likes of day trading signals, swing trade signals, and copy trade signals. Each of these types takes into account the specific conditions that are needed for the trading being carried out.
Signals Trading and Automation – Platforms and Tools
The use of advanced platforms and tools makes it easier to use trading signals effectively, since algorithmic systems and bots are used for signal execution. This method ensures that the same elements are taken into account and analysed rapidly in the same way every time.
The MetaTrader, ActivTrader, and TradingView platforms used on ActivTrades all integrate signal tools that are easy to use and understand. This means that even newcomers can start trading professionally without having to pass a steep learning curve.
There’s a big difference between automated vs manual signals. Automated signals use pre-defined algorithms to create recommendations. On the other hand, manual trade signals are generated through human analysis, which allows the creators to produce signals based on the current conditions.
Types of Trading Signals for Different Markets
The way that trading signals work varies according to the markets that they’re used in. By looking at the main markets, you can understand how they are used in different ways.
- Forex trading signals: What are forex trading signals? These are indicators of possible opportunities for entering a currency pair and executing a profitable trade. The trading history takes into account details like the number of pips profit or loss that was generated in the last month.
- Crypto trading signals: The fast-moving and volatile nature of the cryptocurrency market means that it’s suited to the use of trading signals. Bitcoin trading signals are based on factors like the support and resistance levels, as well as current market sentiment.
- Stock trading signals: This is a way to receive updates advising which stock should be bought or sold, based on the latest technical and fundamental analysis. Overall market sentiment is important here, while each company’s financial reports form part of the analysis too.
Pros and Cons of Using Trading Signals
This method of trading with signals is widely used, but it may not be right for everyone. The following advantages let you understand whether this is the right approach for you.
- Saves time: This is a way of trading without spending a huge amount of time manually analysing the market trends.
- Access to advanced strategies: By using trade signals, you can access professional strategies effortlessly without the hours of studying that are normally needed.
- Automation: This method of signals trading brings an approach that makes trading easy as soon as you sign up for a platform.
Of course, there are some potential drawbacks to consider too.
- Reliance on third-party data: Rather than carry out your own analysis, you’re relying on someone’s work to get your trade signals.
- The risk of low-quality signals: Not all signals are of the same quality. If you receive poor-quality recommendations, it will be reflected in the decisions you make.
Trade Signals FAQs
Do Trade Signals Need to Be Used Immediately?
Some signals will tell you their duration. This is particularly true in fast-moving markets like cryptocurrencies. Others won’t mention the duration, but acting on them as quickly as possible is the most effective approach.
Do I Need to Understand Technical Analysis to Carry Out Signals Trading?
No, the signals you receive will already have had technical analysis done on them. You would only need to do this if you want to double-check the information before proceeding with the trade.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk. Forecasts are not guarantees. Rates may change. Political risk is unpredictable. Central bank actions may vary. Platforms’ tools do not guarantee success.