Most traders are looking for a decent signals service. Why? Because traders want ready things. They don’t have the time, they don’t have the knowledge, they don’t have the self-esteem to decide for themselves. There’s something more though: traders love the blame game, they want someone to blame (who’s probably not themselves) for their losses.
Based on this constant need, many signals services appeared all over the world, mostly through the internet. Signals services for FX are very popular because FX market is a highly volatile market with special attitude on a daily basis. FX market provides opportunities but carries a high risk as well. The questions are many. What are the criteria for a signal service selection? Can I trust track records of the past signals? What if the algorithm behind the signals is very risky (e.g. Martin Gale)?
We start from a very global but not so obvious truth: we cannot predict markets. Markets as a time series contain a huge quantity of noise due to the millions of factors that influence the price, every single moment. These are the bad news. The good news is that even if we cannot predict prices, we can predict trends. Technical analysis has a lot of such methods. Also, machine learning algorithms arose lately, give a new point of view in trend prediction under the category of algorithms known as classification algorithms.
Me personally, would be very sceptical regarding a trading signals service when:
- I see tones of signals every day. Signals occur when the conditions of the algorithm are satisfied. There’s no algorithm that can give decent signals so often and there’s no algorithm which works perfectly for a large number of assets.
- I see track records with constant profits every month on every asset. Only prophets and clairvoyants are so accurate. Every trading algorithm has bad moments, we cannot escape from this rule.
- I don’t see a reliable organization behind a signals service. There must be at least a decent web site, some recent activity, a few profiles, company premises etc
Here are some tips for selecting the optimum signals service:
- A free trial period is always better than track records
- Look for the algorithms details behind the signals service. Algorithm owners of course will not reveal what they do, but they can give you useful information about the nature of their algorithms
- Look for machine learning signals. Machine learning combined with technical analysis features may produce a very good result. Remember that machine learning is not easy and approachable to everybody and that just a few years ago it was a privilege for banks and funds only.
- Favour instant signals than pending orders. Most of the times pending orders signals are based on highs/lows, supports/resistances etc. Instant signals may have the risk that you can open positions immediately wherever you are but the good news is that you can open positions with your mobile phone or you can use an automated system that executes signals.
- Favour signals that have an explicit and well-defined form.
- Contact the signals service company and ask for details. How much time this service is offered, where are they located, how many clients they have etc
As a conclusion, we would like to notice that trading signals service can be very helpful, saving time and money from people that don’t know how to trade or they don’t want to trade by using their own strategy but it’s very important to remember that we must do the right selection based on specific criteria. The most important thing to remember is that no algorithm works properly forever. A company that provides signals must be oriented to maintain a team of professionals who will always be up-to-date with all the latest scientific, trading and technological trends. This team will start to design and implement more and more algorithms while the old ones are already up and running. Favour a company with a team instead a company with an algorithm.