Those new to forex trading will naturally seek out information on Forex Trading Signals. Forex day traders rely on accurate signal services to keep them abreast of this fast moving 24 hour a day market.

The purpose of this article is to introduce the concept of using reliable day trading signals. Three important areas will be covered.  We will discuss the importance of a signal generator, how to judge for reliability, and alternative ways to locate profitable forex trading signals. The goal is for you to be able to seek out and recognize profitable signals and trade like a forex pro.

The easiest way to utilize trading signals is to use signal generator software. Most professional traders use some kind of signal software or signal service to help them judge the market.  Even if this is not their sole source of information in making trading decisions, getting to know and then using regularly one or more of the many signal services available will aid any professional trader in making the split second decisions often required by the forex market.  Signal services are useful neutral, non-emotional sources of information regarding ongoing market fluctuations.

Those new to the forex market are sometimes concerned about using trading signals, and the truth is that it can take time to learn to read them.  The best way to approach this is as with all else in the forex market, use a demo account first.  I remember all too well how I felt the first time I looked at a screen full of fluctuating lines, graphs, pip points, with multi-colored lines running in all directions.  It can be daunting, but worry not; in time the lines will be begin to make sense to you and the language of charts will become your own.

Strategies differ, but most traders tend to use charts to track long term trends in the market, and then use these trends to determine their buy/sell entry points.  Approximately 90% of trading in the forex market is based on trends, the other 10% are riskier trades based on spikes up or down for various currency pairs.  By becoming proficient at reading signals a forex trader will find profit opportunities in both parts of the market; trend and sudden volatile spikes or currency movements.

Currency Signals are to a forex trader as the wind is to a sailer.  You cannot sail a boat across the ocean unless you understand the prevailing winds.  The same could be said for successfully trading the forex market; you cannot navigate your way to profit until you adequately understand currency trends and how to read them.  It will prove to be well worth the time you take to become proficient at reading signals.  By combining your knowledge of signals with a good trading software you will find that your percentage of profitable trades increases exponentially.

The currency exchange market is the largest market in the world with transactions worth $1.5 trillion taking place in a single day. Forex trading is the selling of a currency and simultaneously buying another currency. Trading is done in currency pairs such as Euro to the dollar or dollar to the yen. The most frequently traded currencies in the foreign exchange market are the US Dollar, the British pound, the Japanese Yen and the Euro.

Unlike stocks and futures, forex trading is not conducted in a centralized exchange. It is considered as an over-the-counter (OTC) market as transactions are executed between two parties telephonically or via the electronic network. The forex market is frequently referred to as the inter-bank market because banks dominate it. However, in recent years the number of other market participants such as multinational corporations, money managers, and speculators has increased significantly, particularly so with the advent of the internet permitting trading on a 24 hour basis.

Common terms used in forex trading:

1. Bid: It is the price at which a buyer has offered to buy the currency.
2. Ask: It is the price at which a seller has offered to sell the currency.
3. Spread: It is the difference between the bid price and the ask price.
4. Intraday: Refers to all positions that are opened and closed at anytime during a normal trading day.
5. Overnight position: Refers to all positions that are active at the end of the trading day and are carried over to the next day for trading.
6. Long position: In a long position, the trader buys a currency at a particular price with the intention of selling for a higher price at a later date.
7. Short position: In a short position, the trader sells a currency anticipating that it will depreciate.
8. Limit order: A limit order is an order with restrictions in regard to the maximum price to be paid or the minimum price to be received.
9. Stop loss order: In a stop loss, an open position is automatically liquidated at a specified price. This strategy is used to limit losses

Unlike many major equities and futures markets, the structure of the FX market is highly decentralized. This means that there is no central location where trades occur. The New York Stock Exchange, for example, is a totally centralized exchange. All orders pertaining to the purchase or sale of a stock listed on the NYSE are routed to the same dealer and pass through the hands of a single clearing firm. This structure requires buyers and sellers to meet at the NYSE in order to trade a stock that is listed on this exchange. It is for this reason that there is one universally quoted price for a stock at any given time.

In the FX market there are multiple dealers whose business is to unite buyers and sellers. Each dealer has the ability and the authority to execute trades independently of each other. This structure is inherently competitive as traders are faced with a choice between a variety of firms with an equal ability to execute their trades. The firm that offers the best services and execution will capitalize on this market efficiency by attracting the most traders. In the equities markets, the execution of trades is monopolized and there is no incentive for a clearing firm to offer competitive prices, to innovate, or to improve the quality of their service

Using Stop-Loss Orders to Manage Risk

Due to the importance of money management to long-term successful trading, the use of a stop-loss order is imperative for any trader who wishes to succeed in the currency market. The stop-loss order allows traders to specify the maximum loss they are willing to accept on any given trade. If the market reaches the rate the trader specifies in his/her stop-loss order, then the trade will be closed immediately. As a result, the use of stop-loss orders allows you to quantify your risk every time you enter a trade.

Source: ArticleTrader.com

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Matt Ellsworth
MJE Sales, LLC
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