What Are Trading Signals?

Imagine a stranger shouting directions at you: "Turn left in 200 metres!" That is only useful if the stranger actually knows the roads, if you hear the instruction in time, and if you know where you are right now. A trading signal is exactly that kind of instruction. Whether it helps or hurts depends on who sent it, when you get it and what you do with it.

What is a trading signal?

A trading signal is a specific trade suggestion: what to trade, which direction, where to get in, where to get out if it goes wrong, and where to take profit. Signals can come from a person, a group or a piece of software.

Anatomy of a signal

A typical signal looks like this:

EUR/USD   BUY
Entry:    1.0850
SL:       1.0820
TP1:      1.0880
TP2:      1.0910

• Entry is the price where the trade should be opened.
• SL is the stop loss, the price where the idea is wrong and the trade should close at a small loss.
• TP is the take profit, the target price. Some signals give two or three targets so you can close part of the trade at each.

A complete signal also tells you when it was posted, and good providers explain why, such as "bounce from daily support."

One simple rule: if a signal has no stop loss, ignore it. A trade without a planned exit is a hope, not a plan.