Are trading signals
Trading signals for beginner traders
Like any beginner trader, you’re probably intrigued by the idea of trading signals. Instant alerts highlighting trading opportunities you didn’t know about? Sounds like a path to trading success. But are trading signals really as valuable as they seem?
Are your trading signals of a high quality?
Not all trade signals are of equal quality. Think carefully about where they come from before following their guidance. The real question is: does your source know what it’s talking about? You’d probably assume all signal providers possess a high degree of knowledge and experience, but that isn’t necessarily the case.
The problem is that these services generally aren’t regulated. You’d expect a trading signal to be sent by an expert and perhaps yours will be, but without regulation, there’s also a chance your provider isn’t particularly good at what they do. Worse still, you could be sent a trading signal from a scammer who has created a fake signal that benefits your broker rather than you, the trader.
IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS...
Instagram trading signal scams
Instagram has become a hotbed for scammers looking to entice beginner traders looking to make a quick buck. While these people don’t have any trading success themselves, they trick their followers by posting photos of the lavish lifestyles they claim to lead. In reality, their income is the commission they earn by getting unsuspecting traders to sign up for dodgy platforms and products.
The Guardian published a piece on these so-called “wolves of Instagram”, specifically Elijah Oyefeso who claims to have started the traders of Instagram subculture. The reporter claimed that Oyefeso showed him a WhatsApp group full of thousands of young people he had attracted through social media. Charging each person £69.99 a month, they would receive messages from him which told them what to trade on next. Little did they know, these were all products he was selling.
So, are trading signals worth it? That depends on where you’re getting them from and your attitude to risk.
For most people, it definitely isn’t worth taking a chance on a signal from someone who may have no real credentials. Therefore, it’s probably only worth considering trade signals with a regulated provider.
Do you have control of your trading signals?
Trading signals are ultimately just trading ideas, so you should always weigh up the risks before following one. However, some traders decide to sacrifice all control and leave their money in the hands of other traders. This practice is called copy trading, a type of social trading where you bind your account with another trader’s and automatically match their activities. All their profits and losses will also be yours.
BEGINNER TRADERS, LISTEN UP
While your knowledge is limited, you can hand control to someone else and hopefully ride on the back of their success. But is it really a good idea to place total trust in a person you don’t know?
If they get it wrong, you could lose huge sums that you would never have risked yourself. The automated nature of copy trading also means you could be powerless to stop it. Imagine getting on a train and losing signal for the duration of your journey, having no idea how quickly your losses are mounting up until it’s too late.
What’s more, the data associated with individual traders on these platforms is often inaccurate. You would obviously be looking for a trader who makes a profit, but the information about their past performance is often hypothetical and not based on actual events. This data can also be generated by demo trading accounts — not real ones using real money. Of course there’s always a chance copy trading could pay off for you, but with all these potential drawbacks, you’d be much better off choosing trading signals you have total control over.
Do you have to pay for your trading signals?
Most signal providers make you pay a pricey monthly subscription. Trading signals may be helpful, but are you willing to pay for the privilege? Even if the signals seem to be paying off, you might not actually be making a profit once you deduct the subscription charges. In fact, you could need pretty high returns in order to break even.
If trading signals are something you’re interested in, it’s more worthwhile financially to choose a free provider. However, there is a catch — you’ll normally have to sign up with a broker of their choosing and they’ll earn commission whenever you place a trade.
This isn’t ideal if you have your sights set on another broker, but if you’re keen to take advantage of trading signals and you’re totally happy with the broker on the table, it’s a no brainer.
Will your trading signals educate you?
Trading signals can be useful in teaching you new strategies and helping you become a better trader. For instance, there are signals which come with reports detailing the rationale behind the suggestion, and reading and learning from these can build your confidence and understanding. Without this knowledge, you could make mistakes that amount to huge losses. Take amateur trader Richard Dobatse, who turned $15,000 into $1 million and then lost it all. Of his trading platform, he said:
“They make it so easy for people that don't know anything about stocks. Then you go there and you start to lose money.”
Of course, not all signal providers provide fully fleshed out explanations so you could be blind to what’s really happening in the markets.
And even though education is clearly an invaluable benefit, perhaps you’re content to just follow the signals without question and hope for the best. Although, we have to point out how risky that is because there’s no absolutely guarantee that the signals will pay off.
If you are keen to use trading signals as a learning tool, it’s only worth doing so with a trustworthy provider that gives you the information you need to piece together what is working and what isn’t.