Forex Trade Signals - How To Interpret the Signals

What Forex Trade Signals Can Show You

Forex trade signals have been developed to help investors know where the Forex market tends to head to. Forex trade signals usually take the form of an e-mail or text message sent to the investor advising him of the position of a currency set, generally in the context of an advised buy or sell.

Most Forex trade signals are available by subscription. While many are available free or complementary to a broker’s clients, some Forex trade signals are available that, while they may cost money (sometimes up to USD100), provide up-to-the-minute status alerts and, as such, may be preferred by an investor.

Using Forex Trading Signals alone to make your decision to invest and risk your money can be risky. It's best to use these signals as an indicator to help support your own appreciation of the forex market and its trends.

While Forex trade signals can be very useful, particularly when combined with knowledge how to interpret those signals, it should always be remembered that Forex trade signals are nothing more than advisements as to a currency set’s position. No Forex trade signal can guarantee profits. However, Forex trade signals can be used to gain insight into the market and to help inform the investor of the status of the currency set, thus relieving him from continually monitoring the Forex market.

The basis and techniques to generate the signals - How Analysts work:

Forex trade signals are based upon a combination of analysis and interpretation. Analysts use two primary forms of analysis: fundamental analysis and technical analysis.

Fundamental analysis looks at the current performance of a currency pair in relation to various economic indicators, such as Gross Domestic Product (GDP) and inflation, as a way to estimate future performance. While fundamental analysis obviously has a place in understanding relative currency performance, technical analysis is a more common method of predicting currency fluctuations.

Technical analysis looks at the historical performance of a currency pair as a way of estimating future performance. Historical performance is analyzed using various methods borrowed from mathematics and statistics in order to predict the probability of future currency value. Technical analysis, in theory, carries of the benefit of being objective; however, many techniques of technical analysis exhibit some level of subjective interpretation. Common methods of technical analysis include Fibonacci studies, Elliott waves, parabolic SAR, and pivot points.

Most used Analysis Systems:

Fibonacci studies and Elliott waves are both cyclic, “wave-based” systems for analyzing currency performance.

Fibonacci studies combine Fibonacci’s methods for explaining random sequences with the concept of waves: A-B-C. Currency rises on Wave A, corrects at Wave B, and rises again at Wave C. Fibonacci’s "golden ratio" is used to estimate the retracements, basically meaning when the tides turn.

Elliott waves is a principle based on a similar wave structure as the Fibonacci studies, only in Elliott waves for every five waves in one direction, there are three corrective waves, and it does not use a ratio to calculate retracements.

Parabolic SAR (or stop and return) and pivot points are both simplistic systems that involve looking at points when the currency shifts direction as a way to infer future performance. If the current price is above the point, it is overvalued and good to sell (a bull market); if the current price is below the point, it is undervalued and it is good to buy (a bear market).

Forex Trade Signals