Before we dive into the world of binary options signals, we will start by taking a look at trading signals in general. It is difficult to understand and properly utilize binary options signals without knowing the basics of trading signals. Further down on this page, you can find more specific information regarding binary options signals.
What are trading signals?
Trading signals, also known as trade signals, are triggers to open or close a position. The signals are generated by analysis. The analyst can be a human, but trade signals generated through automated technical analysis (the studying of historical trading data) are much more common. There is also mathematical algorithm software available that will generate a trade signal when certain market conditions are met, or depend on a combination of market conditions and other factors, erg economic indicators.
There are a lot of companies that provide trade signal services to traders. Some of them offer a combination of free signals and signals that you have to pay for, while others only offer the one or the other. You can subscribe and have trade signals delivered directly to your mobile phone, or even connect the service to your trading account.
How are trade signals generated?
Trade signals can be created through various methods, and some of them are generated through a combination of methods. Examples of methods are technical analysis, fundamental analysis, quantitative analysis, and news analysis. There are even trade signals that are derived from other trade signals.
Here are a few examples of information that can be utilized to create trade signals:
- Volume surge. If there is a notable increase in trade volume for an asset, it is often (but not always) a precursor to a new move in the market.
- Volatility. Extreme highs or lows in volatility can herald market changes. It is important to remember that volatility can be measured in several different ways. Make sure you are comparing apples to apples and not apples to golf balls.
- Cycles, such as the seasonal cycle for stocks (”sell in May and go away”).
- If an important central bank announces a change in interest rates.
- Within the field of technical analysis, certain patterns are considered precursors to breakout or break down. Examples: Triangles, head-and-shoulders and rectangles. Technical analysis also tend to have a strong focus on trendlines. Moving average cross are also considered important, with many analysts pay special attention to 50-day and 200-day moving averages.
Binary options signals
Binary options signals are trade signals tailored to the needs of binary options traders. You can either build your own signal generator, or use a signal service to provide you with signals.
The quality of the signal service companies and their products vary greatly, so do your due diligence before you sign up with anything. Even if you are offered FREE binary options signals, poor signals will still end up costing your money if they make you risk your money on the wrong deals.
Most binary option signals are intended for immediate use, and even a five minute delay can diminish their value or even make it a bad idea to follow them. Because of this, some binary options traders employ automated systems where certain signals are allowed to open and close positions for them without the trader seeing them first. That way, you do not risk delays and you also avoid living with your nose stuck to your phone, worrying about missing a valuable trade signal. Of course, it also means giving up a certain degree of control.
Should beginners use trade signals?
Trade signals can be valuable for beginners, but it is also a risky choice. One of the big pitfalls is that if you are novice trader who need trade signals to help you out, you are also a novice trader that will find it difficult to properly evaluate trade signal providers and set up a trade signal service prescription that is ideal for your trading strategy and preferences.
We would also like to caution novice traders against using trade signals as a lazy way out. If you want to be a long-term profitable trader, you need to put in the work and learn about the markets you want to be active on. Trade signals can be helpful, but you should not place all your trust (and your entire bankroll!) in the hands of a trade signal provider.
Properly used, high-quality trade signals can be helpful for the beginner, and if you study them well and learn more about how they are generated, you can also learn more about trading and how markets work.
Simply signing up for a signal service expecting to get rich with 0% effort and a minimal investment is likely to end in serious disappointment
Even if you have found a great source for binary options trading signals, risk management remains very important. Do not put all your eggs in one basket, even if it can feel very tempting at times to go all-in on that amazing opportunity.
Make sure that are stops in place to help you manage risk, erg to prevent a large chunk of your bankroll from being invested based on a trading signal. Of course, allowing trade signals to automatically carry out leveraged trades increases risk.
Simple and complex signals
- A simple signal will tell you exactly what to buy and when. When it comes to simple signals for binary options, they typically recommend a specific binary option that they believe will mature in the money. Generally speaking, subscribing to simple signals is cheaper than subscribing to complex signals.
- A complex signal requires more of you, since it will not tell you exactly what to buy and when. Instead, it will make a prediction about the future, based on analysis, and you will need to find a way of utilizing that prediction to your benefit. A complex trade signal might for instance predict that the currency pair USD/CHF will trade at 0.9270 at 12 pm. You can then search out a suitable binary option that will end in the money if the prediction comes true. The complex signal therefore gives you more freedom and flexibility, since you actually get the result of the analysis rather than just being encouraged to buy a specific binary option.
Choosing a signal provider
A good place to start when comparing signal providers is to look at their success rate. No signal provider has 100% success rate. (If one claims to have that, it is safe to assume it is some sort of scam.) A success rate exceeding 70% is considered good, and getting close to 80% is excellent.
When you start using a signal provider, trade using very small amounts and closely track your success rate. Does this success rate line up with the historical success rate advertised by the signal provider or not? You can also use a free demo account with a binary options broker to do play-money trades while evaluating a signal provider. To some, this might seem like throwing money in the sea if it is a paid signal service, but investigating a signal provider before you start risking your bankroll can be well worth it.
Please note that your success rate can vary from the official success rate for a number of reasons, so don´t automatically label a signal provider low-quality or a fraud just because you notice a discrepancy. You need to investigate what is going on. One common reason is that the binary option in question changed between the time of signal generation and when you made your purchase.
Here are a few examples of red flags to watch out for when you select a trade signal provider for your binary options trading.
- It seems to good to be true. The signal provider is making wild claims. They promise you will be a millionaire in no time, without effort and on a shoestring investment budget.
- They claim that their success rate is close to 100%. Actually, even a claimed success rate anywhere above 80% is cause for concern and should make you proceed with extra caution. Most of the reputable high-quality providers have a success rate just below 80% or so.
- When you visit the provider´s web site, do they display a list of active trades? Take a screen shot and come back later. Does the active position match up with their historical transactions?
Do not let signal providers stress you during the sign-up process. Just like many other businesses, some of them will try to create a sense of urgency through time limited discount offers and similar. Don´t get caught in this. There will be new offers. Make a well researched decision when you head is calm.