Forex Signal Providers – What To Consider
With the growing popularity and easy access to the foreign exchange (ForEx) market, more and more people are drawn to it as their financial vehicle of choice. Along with this popularity come all the extras. This includes all kinds of software, trading systems for sale, books, videos, and third party signal providers. Today I’m going to touch on a few points when seeking out a third party forex signal provider.
For you to choose a quality third party signal provider, we should have a good understanding about who they are and what they do. Signal providers are other traders or analysts that are able to place trades in your own account with the hope of turning a profit. Depending on your trading needs, you can have one or many signal providers.
The US Constitution states that all men are created equal. Unfortunately this is not the case with traders or signal providers. Some traders look like a million bucks at first glance but turn out to be bad news upon further inspection. To keep away from these types of traders we have to set some guideline to follow when choosing a third party signal provider.
1. Is your signal provider a winner? It would seem that no one would trade the signals of a losing trader, but still I see losers with a big following from time to time.
2. The next thing to look at is how long the trader has traded profitably. You don’t want a brand new trader without a track record trading your real money account.
3. Look at the max draw down. This is the largest peak to trough draw down in equity that the trader has historically had. Some traders refuse to take a loss. This causes them to hold on to losing trades forever or until they turn to a winner. Turning a loser into a winner sounds great, but it will eat up a huge chunk of margin and may never turn around. If it doesn’t turn in your direction, you will have your entire account destroyed by a trader that could have taken a 30 pip loss but held on until it was an 800 pip loss.
4. The first three are easy to look at. They will be displayed right on the main screen of signal providers to choose from. Once you get a few signal providers you are thinking of using, its time to dive a bit deeper into their history.
a. Look at their actual trades. Do they have a good win rate because they have opened a ton of trades all at the same time on the same currency pair? They may have 20 winners in a row. This looks great, but if you look a bit deeper you will see that its really only 1 winning trade places 20 times. Not as impressive is it?
b. Look at the draw down on each trade. If your signal provider lets trades get several hundred pips away from them and then cuts them short the second they head back into the black you are in trouble. This is a trader who lets losses run and cuts profits short. You do not want to trade a signal provider of this variety.
c. Make sure that they do not constantly average down. A trader who is adding to losing positions and trying to buy a better entry point is asking to go broke. This is a trader to avoid.
5. Make sure that the signal provider that you choose is suitable for your risk tolerance. Choosing a very aggressive trader will not work for a very conservative investor no matter what the win rate.
These are just a few things to look for when choosing a third party signal provider to trade your forex account. You should always trade a demo account before opening a live account with real money. Remember it’s your account. In the end you choose the signal providers, and you are responsible for what happens.
To learn more about Managed Forex Accounts visit Automated Forex Trading Systems.
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