Having accurate signals to trade can help everyone involved in the markets, but for those involved in CFDs, they can be particularly useful. While traders use various indications in most types and styles of trading, the fast-moving pace of CFDs means that data needs streamlining as well.
A trading signal is, at its most basic, an indication of when and how it is best to trade any particular forex pair. This information derives from specific price analysis. It can be the product of some form of automated analytic program utilizing complex technical indicators as much as it can be the result of a manual interpretation of a source of data.
Using trading signals can be tricky for the novice trader, but the key to success lies in taking a methodical approach. Once a clear and reliable source of trading recommendations is consistent with a trader’s own trading strategy and methodology, the entire process can become more straightforward.
In fact, most signal providers are likely to be able to produce research that underpins individual recommendations so that they can make an evaluation of their validity on a trade’s own terms. A “strike rate” of previous signals can also be useful in assessing the likelihood of the data being accurate and helpful.
One of the most important pieces of information for CFD traders is the entry point, which essentially suggests the best price level at which to open a trade on any particular forex pair in question. Choosing whether to take a long or short position follows on from the entry point being set at a level, which will trigger market activity in accordance with the analysis that lies behind the signal.
Automated tools allow traders to use entry points to open a new forex position when a price hits the level named, and alerts can be set so that a trade can also open manually.
Obviously, a successful CFD trade requires both an entry and exit point, and reliable trading signals will usually provide two exit points. These are the stop level and the limit (or “take profit”) level, and they indicate where a position should close in response to the original signal:
The stop level is a risk management tool that suggests where a position should close if the trade is moving in the wrong direction. Perhaps counter-intuitively, the limit level is the point where a position can close to lock in a profit when a trade is moving in the right direction.
Knowing how to use stop and limit levels is a key element of any successful CFD trading plan, and traders can alter and adapt this strategy to suit their individual risk/reward attitudes.
Finding signals for forex pairs is fairly straightforward and searching by instrument is an easy online process that allows a personalised forex trading strategy to build from the ground up. Various approaches can produce trading signal data, including charts, Japanese candlesticks and other traditional indicators.
An ancient version of technical analysis invented by the Japanese to trade rice, Japanese candlesticks were re-discovered by broker Steve Nison, who then researched the process in great detail. Growing in popularity in the West during the 1990s, the method can work in any time period, no matter how short, which is why it has renewed appeal for CFD traders.
As the price is “marked to market” each day for CFD trades, the fast-moving environment of forex markets is highly appealing. In addition, the concept of forex pairs makes a financial instrument based on price changes a natural fit, especially as the forex markets trade over the full course of the trading week as opposed to only during limited hours like stock exchanges.
By using trading signals, forex CFD traders can gain an insight into trends that may prove to be an invaluable tool for success, with the added advantage that data gathered in this way can be utilised alongside other strategies quite easily.