The Forex industry has evolved over the years. Before, it was the exclusive playground of the big guys, the institutional traders with their large trading accounts. Virtually all transactions had to be conducted via the interbank exchange. As a result, there was limited, if not nonexistent, room for retail trading in the market. However, now, hundreds of retail brokers cater to the needs of ordinary traders.
With the increasing access to the Forex market also came new developments such as signal services. Signals have become so popular among Forex traders that it is almost impossible to think about the Forex market in isolation from them again. The reasons for that are not far-fetched. At least 90% of Forex traders fail and end up quitting. So, many newbie traders who wanted to do well in the Forex market had to consider using signals to ensure their success.
And maybe you should, too. This guide aims to teach you everything about signals and how you can start using them, too.
Signals: What are They?
Forex signals are trade recommendations generated by either human analysts or traders and computer programs which are communicated to their subscribers via social media pages, SMS, email, and even analysis websites and blogs. Because they are effective, they have grown in popularity over the years.
Based on the way by which they are generated, Forex signals are classified into two categories: manual and automated signals. Manual signals are those signals generated by human analysts and traders. On the other hand, automated signals are created by computers and are often fed directly into the trading accounts of their subscribers.
“Which one should I use?” is a popular question among traders seeking to start using a signal service. But, the answer is not clear-cut. Rather, largely, it depends on your situation, convenience, financial capacity, and personal preferences. Hence, we have offered here a comparison of the two types of signals and then leave the choice for you to make.
Manual and Automated Signals
Manual signals are the more popular of the two types. When most people talk about signals, chances are that they are talking about the manual type of them. As outlined earlier, manual signals are generated by human analysts and traders. They are often communicated via social networks such as Facebook, Twitter, LinkedIn, websites and blogs.
Automated signals, on the other hand, are produced by trading software. Those computer algorithms are developed by programmers and statisticians who have analyzed historical market data for each currency pair to be able to predict their exchange rates. They are derived from the different technical indicators such as Relative Strength Index (RSI), moving averages, and Stochastics.
Both traders who use automated signals, called “algo or robo-traders”, and their manual signal users counterparts are always encouraged to backtest the signals they want to use to have an idea of how they perform first before they start using them.
Advantages and Disadvantages of Manual and Automated Signals
Manual signals have the following advantages:
- Human Intelligence: One of the reasons manual signals have come to stay is the fact that they do not eliminate the place of human intelligence. The Forex market is highly susceptible to the influence of crowd psychology which humans can better analyze than robots.
- Adaptability: The market is not rigid — and providers of manual signals understand this well. Past historical data are not any guarantee of future performance. Hence, manual signals, in this regard, can make a better choice than automated ones.
- Trading the News: Whenever there is a high-impact economic release around the corner, manual signals are your choice. They do better than their automated counterparts in such conditions.
- Lower Risk: Manual signals are less risky compared to automated signals. Oftentimes, their risk-reward ratios are also better because of their larger profit targets.
However, manual signals have their problems also. First, they are time-consuming. While you do not have to analyze the markets yourself, you still have to log into your trading platform and enter the suggested trades yourself. Plus, it is practically impossible for you to be able to execute every one of them. That is, with manual signals, you are bound to miss opportunities from time to time. You should consider these downsides before you finally decide to settle for them.
Automated signals, on the other hand, have advantages such as:
- Ease of Use: They are easier to use. They are automatically generated and directly executed on their subscribers’ trading accounts themselves. If the convenience of the highest order is what you are looking for, go for them.
- Less Time and Efforts: Because of their ease of use, automated signals save time and effort. With them, Forex trading becomes less stressful and more fun, and you do not have to be glued to a screen every time to win.
- Eliminates Emotional Trading: Automated signals win here. Emotions are the number-one reason Forex traders fail and quit. Those traders allow their losers to run, hoping that their fortunes will reverse. Greed and fear are two damning emotions that they feel.
Despite these benefits of automated signals, they are not without their drawdowns. Automated signals, for example, have lower winning potential compared to manual signals. Also, since they are based on already programmed software, they are not adaptable. That is, they cannot deviate from historical data to adapt to new market situations.
Finally, we are not saying one is better than the other. You should just evaluate the pros and cons of both before you eventually make your choice. 1000pip Builder, however, provides the best manual signals around and you might want to subscribe to their service here.