What are the Common Forex Signals?

Aug 16 • Forex Signals, Forex Trading Articles • 1687 Views • Comments Off on What are the Common Forex Signals?

While forex signals providers generally have their own signal terminology that is specific to them, there are a number of common ones that you will frequently encounter and whose meaning you should familiarize yourself with. The most common one is, of course, the buy/sell signal that tells you when to enter or exit a trade and a precise entry or exit point.

Here is a short list of some other trading signals:

  • Overbought/Oversold (OB/OS). When a currency is overbought, its price is said to be unsustainably high due to excessive demand and there may be a pullback. The price of an oversold currency, on the other hand, is below its true value and thus may experience a pull up. These forex signals are triggered when oscillators reach a certain value and may represent a buying or selling opportunity for investors. However, it should be noted that an OB/OS trading signal may not necessarily indicate that a reversal is imminent since markets can remain overbought or oversold for a long time.
  • Partial Buy/Sell. These are hedging forex signals that tell you to only buy or sell some currency lots in order to minimize your risk when investing in highly volatile currency pairs. By holding back some of the lots, you hedge your bets since the price of the currency pair may abruptly swing in the other direction, giving you a profit opportunity you can take advantage of.
  • Stop Loss. This is not actually a trading signal as much as it is a way for you to minimize your risk of losing a lot of money in possibly volatile markets. This order tells the broker to shut down your position by selling the currency pair when it reaches a certain price. Stop loss orders are expressed in pips, i.e., the stop loss may be 30 pips below the entry price. Setting a stop loss order is vital in order to mitigate the risk of trading in the currency markets.
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  • Take Profit. This signal locks in your profits when a currency price moves in a direction favorable to you by closing out your position. For example, if you are trading the currency pair EUR/USD and your entry point is 1.2356, you can set your take profit order at the 1.2370 level. When the pair reaches this level, the broker will sell your holdings, allowing you to realize your profit. Setting a take profit signal allows you to lock in a certain amount of profit from your trades while mitigating the risk of losses due to sudden reversals.
  • Volatility. These forex signals warn the trader that a particular currency pair may experience high increases and deep declines in price within a short period of time.
  • Once you subscribe to a forex signals service, you should familiarize yourself with the signals terminology they use to make it easier for you to understand them once a signal is communicated to you. In addition, you should follow the accompanying instructions carefully to ensure you are using the signal properly.

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