Pros and cons of trading signals

Generally, the trade signal indicates the favourable time and price to place either a buy or a sell order. Talking about Forex trade signals specifically, they are sent to the traders in the form of email alerts, SMS alerts, pop-up messages, RSS, tweets and so on. The trading signals are generated by the human specialists or produced by the automated Forex software – FX robots.

Although signals are meant to help the trader make informative trading decisions, they still have some flaws. In this article, we would like to weigh all the pros and cons of exploiting trading signals.

Advantages of trading signals

Watching the market 24/7 can be difficult and might not suitable for all types of traders. This is when trading signals come into play, as they simplify the trading activity. If you are confident in the signals that you receive, you will be able to concentrate more on the trading strategy rather than spending a lot of time searching for new opportunities.

Good FX signals alleviate the market risk, because traders are updated in real-time about market fluctuations. If the signal providers are experts in trading, then there are more chances that the trading signal would present a high level of precision.

Additionally, trading signals for Forex traders deliver the opportunities to learn and deepen the understanding of trading the markets. By analyzing your charts and trading history, you will be able to see how the proper entry point is determined and investigate which factors affected the triggered trading signal.

Lastly, there is a massive number of signals available on the Internet. Some of them are absolutely free of charge and some are accessible for a fee defined by the signal provider.

Disadvantages of trading signals

Perhaps the first major drawback of trading signals is that there are many scams that look like authentic signals. Despite the fact that trading signals are supposed to be sent by the professional trader or analyst, you do not really know what people are behind the name “signal provider”. Therefore, accepting the trade signal is always a risk. The only way around to prove whether the signal works is by reading the transaction record and viewing the detailed stats of the signal provider.

The second point to mention here is the costs. Free signals might be attractive, but in the majority of cases they do not present much value. Such signals are mostly generated by the less experienced traders. The thing is that professional Forex traders rarely share their signals for free, so they mostly go for different compensation methods. One of them is the paid subscription.

At the beginning of this article, we have said that the signals can be generated by the automated trading signal software. This type of receiving trade signals is not reliable, as the signal software is not capable of effectively processing fundamental data. Just like any other type of software, FX robot can go haywire with possible system errors that lead to the misleading performance.