Updated: Feb 11, 2021
Trading signals are trade calls offered by many financial marketers which supposedly help traders pick out good market opportunities and allow them to profit.
A trading signal delivered to your inbox or phone can read like this:
Sell GBP/USD at 1.4627 with SL 1.4695 and TP 1.4522
Seems so easy to make money with a signal, doesn’t it? Don’t fall into this trap. Here are some crucial reasons why you should steer clear of trading signals.
Trading signals cripple your trading prowess and give you a false sense of guidance: While receiving signals may put you in a comfort zone, and make you feel ‘guided,’ beware that these feelings are misleading. Following a trading plan based on a time-tested strategy and sound money management principles is the only way to trading success. If you ‘squeeze’ these signals into your trading, you could be left in a state of confusion and undermine your original trading plan. You could also find it hard to maintain trading discipline.
The claims of highly profitable signaling service: You need to be wary of unusually high profits claimed by most signal providers. Claiming unrealistically high trading profits are nothing but a marketing gimmick that signal providers use to attract unsuspecting traders into a subscription.
Even correct trading signals cannot guarantee profitability: Even when trade calls from a signaling service are mostly in line with market moves, they do not guarantee profits. The art of trade execution is all about mental discipline and emotional control, which in turn helps you to follow risk/reward management principles, along with your basic strategy. Having the ‘correct’ trading signal does not always mean you can profit out of it if you lack the necessary discipline for its correct execution. People with the same trading signal can produce vastly different results for that trade.
Signals can be randomly generated: Any trading system can be programmed to generate a large amount of signals on a daily basis. There is unfortunately no way of telling how these signals are actually generated. Whether they are derived from some elaborate economic or technical analysis, or are randomly generated, is something we can never know. For this reason, it is always wise to rely on your own time-tested trading plan.
Unfortunately, the aim of most signal providers is to maximize subscription revenue as well as trading commissions (if the signals are coming from your broker).All in all, trading signals can end up causing more harm than good. There is no substitute for patience, discipline and a time tested trading plan when it comes to successful trading.