Forex is a trade name given to the foreign exchange market. Stated simply, Forex refers to the market that trades in the buying and selling of different currencies. The goal is to buy cheap and sell high, and vice versa. For example, Mr. A uses 1,000 USD to buy 813.471 EUR. After a few days, the price of the Euro rose a few points. Mr. A then exchanges the same amount of Euros for US dollars. This time Mr. A is given $1,121 USD.
This article will discuss the concept known as Forex signals. The discussion will center on basic understanding through simple words and appropriate examples. By the end of this article, the reader should be ready to learn the different types of Forex signals as well as the proper ways to utilize the same.
Forex Signals Defined
A signal is the reference point for traders to react or not react. A signal is determined by proper identification of appropriate indicators through an automated system or human intelligence and analysis. For best results, several signals are cross-referenced to determine appropriate action or inaction. And these have to be done fast in order to be one-step ahead of the competition
For example, Mr. A is looking to trade in US dollars. He uses his knowledge and experience to select appropriate indicators to determine when he will buy and/or sell. If the indicators point to a favorable market for buying and selling then Mr. A will enter and/or exit several trades in any given trade day. However, if the indicators show a stable trend, then Mr. A does not have an incentive to trade since there is no price drop or rise to manipulate.
Importance of Forex Signals
Knowing what to do, when to do it and/or whether to act or stay put is essential for making profits, maintaining the same and minimizing losses. Signals appropriately identified, measured, analyzed, and then utilized is a means by which the right thing is done at the right time. Any mistake in the above-mentioned steps will either minimize the profits earned or result in losses.
For example, Mr. A is interested in trading US Dollars. He wants to determine how volatile the market is. For this purpose, Mr. A looks up the Relative Strength Index (RSI) and the Bollinger bands. The RSI shows that dollars are trending in a flat line within 45 to 55 points. Mr. A cross references the RSI with the Bollinger bands which show a narrow band. This shows Mr. A that trading in US dollars is not going to be profitable as of the moment because prices are neither increasing nor decreasing significantly.
Where to Look for Forex Signals?
Signals can be viewed on the television, on the market floor, via paid websites, etc. Because time is of the essence when it comes to Forex trading, signals can be directed to your personal computer, smart phone, tablet pc, etc. via alerts, emails, through SMS (text messaging), RSS feeds, tweets, and other forms of information dissemination technique. Simply put the most advanced technology is utilized to get the information as fast as possible.