With dozens of Forex signal providers to choose from, picking the right one that suits all your needs is far from an easy endeavor. Although the overall profitability of the signals is what most traders are looking for, there are also additional features of signal providers that can affect your trading success. Profitability is important, but risk management, verified results, the type of signals and additional support shouldn’t be neglected as well. In this article, we’ll provide 9 important tips for picking the best Forex signals provider so you can enjoy a long-term and successful business relationship.
1. Signals have to be profitable
Naturally, our list has to start with the most obvious tip – the trades sent out by the Forex signal provider have to be profitable. Many signal providers claim to catch up to a few thousand pips per month, but without a verified track-record those numbers shouldn’t be taken seriously. Furthermore, if a provider “guarantees” a fixed amount of pips per month, you should cross that provider from your list. Markets are unpredictable, and even large market participants such as hedge funds and investment banks with hundreds of professional traders do report a losing month from time to time. There is no guarantee in profits, and this needs to be an early warning sign.
In addition, profitability can’t be discussed without mentioning risk. The number of net pips caught per month needs to be put in relation to the maximum drawdown of the signals and their reward-to-risk ratio. If a trade makes 100 pips but the potential loss is twice that large, the maximum drawdown over a certain period of time should not underestimated. Some Forex signal provider offer so-called “jackpot trades”, which are trade setups with a reward-to-risk ratio of 10 or more and which occur rarely in the market. In fact, a recent study of a large Forex broker states that trades with a reward-to-risk ratio lower than 1 are around three times less successful compared to trades with higher R/R ratios. You may want to have this on mind when picking your Forex signals provider.
2. Check for verified trading results
The claimed profitability of a signal provider doesn’t mean much without verified trading results. A verified track-record ensures that the claimed performance is real and verified by a third-party, such as Myfxbook, FX Blue or ForexFactory, to name a few. The social trading platform of eToro and its Popular Investor program is also a great source of signal providers with verified track-records. Another major consideration is whether the signal provider uses a demo account or real account. Naturally, traders are more convinced to follow a signal when the signal provider uses a real account and also opens the trades himself.
Some signal providers publish hypothetical or simulated track-records of their signals, which means that their signals weren’t opened in the real market. Those track-records can differ from real track-records to a large extent, and show that the signal provider doesn’t trade his own signals. For some traders, this may be a reason enough to look for another signal provider. According to the CFTC rule 4.41, the signal provider needs to emphasize the fact that his performance reflects hypothetical or simulated results if this is the case.
3. Do the signals include charts or comments?
A good Forex signals provider should provide charts and comments together with the signals. Some providers use mechanical systems to generate their trades, which are often sent out just in a basic form that includes the entry price, the stop-loss level and the take-profit level. Usually, those trades are not hand-picked, as the system uses simple technical rules to generate buy and sell setups. Other providers are full-time traders and analyze the market themselves, which often leads to higher-quality trading signals. These types of providers provide charts and comments that accompany the signal itself, so you’re fully aware of the reason why you’re entering a buy or sell position. This is also a great way to learn along the way, as you get a valuable insight into how the market works and why the provider thinks that the trade should play out well. If you have the chance, look for a Forex signal provider which provides charts and comments with the signals.
4. Sign-up for a free trial first
A transparent and profitable Forex signal provider should offer a free trial for his clients. Free trial periods are a great way to assess the quality of the signals, and most traders would consider going for a paid subscription if the signals during the trial period show to be profitable. Let’s face it – a signal provider with low-quality and unprofitable signals (usually without a verified track-record) won’t offer a free trial period for his potential clients as most of them wouldn’t convert by the end of the trial. Don’t buy a pig in the poke and double-check signal providers which don’t offer a free testing period. Free Signal trials are usually provided for a period of one to two weeks, which is enough to assess whether a signal provider is worth considering or not.
5. Make sure the trades match your trading style
The type of trading signals sent out by a signal provider should suit your trading style. Check the number of trades that the provider sends out during a day – a large number of trades signals that the provider uses a relatively short-term trading approach, while a lower number of trades usually suggests that the trades are based on longer-term setups. Another way to assess whether the trades are short-term or long-term is by analyzing the size of the stop-loss and take-profit levels. Short-term trades call for tight stop-losses (up to 50 pips), while long-term trades need wider stop-losses to withstand the negative price fluctuation.
The time-horizon of the trades is important because long-term trades usually work better than short-term ones. However, if the signal provider uses a short-term approach and has a successful and verified track-record, then the choice is up to you depending on your personal preference for short-term vs. long-term trading.
Signals can also be grouped by their underlying market analysis. Most signal providers base their trades on technical analysis, and a few of them combine fundamentals to identify high-probability trade setups. In the long run, trades that are based solely on technical analysis tend to underperform trades that are based on a combination of technicals and fundamentals. If possible, make sure to find out what analysis the signal provider uses when sending out his trade setups. Hint: This can also be done by analyzing the charts and comments that the provider sends together with his trade setups. If fundamentals are nowhere mentioned, the signals are probably based solely on technicals.
Additionally, some Forex signal providers also cover commodities such as gold and oil, which is a great way to diversify your trading portfolio and reduce the overall exposure to currencies. Commodities are known to move inversely to the US dollar, which can lead to additional trading opportunities and risk reduction.
6. Signals should match your time-zone
The time of the day when the signals are sent out should match your time-zone. You don’t want to pick a signal provider who doesn’t trade during your time-zone and sends the signals out in the middle of the night (your time). Of course, the time the signals are delivered also depends on the Forex market hours. The Asian session usually provides lower volatility compared to the European and US session, which in turn calls for lower profit-targets. Most signal providers that are short-term based trade during the London and New York session, so make sure either to be available to open the trades as soon as you receive the signals, or look for a signal provider who matches your time-zone. You can find the exact time when the signals are sent out on the provider’s website. They usually state the best time-zone for trading their signals. You can also sign-up for a free trial and check the exact times when the signals are delivered.
7. Does the signal provider actively manage the trades?
Another important consideration when picking the best Forex signals provider is whether the trades are actively managed. Extreme market conditions and major news reports can disturb the market and invalidate a perfect trade setup, and a good signal provider should inform his clients what to do with a signal during those times. This includes closing a trade, adjusting the stop-losses or take-profits or dismissing any signals sent out recently.
In addition, a good Forex signal provider should have strict risk and money management guidelines in place so you can rest assured that your capital is protected when opening the trades. This also includes partial profit taking – if the signal provider thinks that a trade is losing steam, he should inform you to take partial profits and leave the remaining position open.
This is especially true for short-term signal providers, as those types of trades need to be more actively managed than longer-term ones. However, if you don’t want to follow the market after you open a trade, you should consider signal providers that provide longer-term trade setups.
8. Trading portfolios can reduce your risk
Good signal providers take care about all aspects of trading, which also involves creating a portfolio of trades. A portfolio of trades refers to trading a combination of currency pairs which are inversely correlated to each other in order to diversify your risk. If a trade goes against you, another trade should go in your favor. Similarly, if a currency appreciates or depreciates to a large extent, the inversely correlated currency should make up for the loss. Evidence shows that successful and profitable traders pay attention to the correlation of their trades, and your signal provider should too. If you can’t find this information on the provider’s website, try to contact him directly or sign-up for a free trial to assess whether a portfolio of trades is maintained.
9. Look for additional trading support
Although the quality of the trades is the most important feature of a Forex signal provider, any additional support can also come handy on your trading journey. The kind of additional support is usually listed on the provider’s website, so make sure to go through the complete description before subscribing. Some signal providers send a weekly watch-list of currency pairs they are looking to trade the upcoming week. This can also be used as a learning tool if you’re not primarily interested in blindly following the signals sent out by the provider. Other signal providers offer educational material and videos for their clients, so you can learn and improve your trading skills along the way.
Customer support is also a major point, and most signal providers do offer a support-line via E-mail or WhatsApp. You need to be able to contact the signal provider in case of any problems, and a customer-oriented signal provider shouldn’t mind answering all of your questions.
In this article, we’ve covered the main points you need to consider when picking a Forex signals provider. This is not an easy task, as all signal providers try to offer something unique that separates them from the rest of the industry. Beside the profitability of the signals, which is obviously the most important consideration, you need to make sure that the type of trades and times at which they are sent out suit your personal trading style and time-zone. Naturally, following unverified providers carries significant risks which is why a verified track-record is very important. Even if the signal provider does have verified results, make sure to open first a free forex signals trial account to assess the quality of the signals in real-time.
Any charts and comments sent together with the signals are a welcoming feature as they help in understanding the signals and offer valuable learning material. Furthermore, the signal provider should have strict risk management guidelines in place and keep you updated on any changes on the trade setup.
Signal providers who create a portfolio of trades help in reducing risk and boosting the overall profit-factor, and an active support-line via E-mail or WhatsApp shows that the provider strives to provide a helpful customer support. By following all mentioned tips and fine-tuning them to match your trading style, you’ll able to find your best Forex signals provider in record time.