When studying Forex, I often see Forex Trading Signals. There are various indicators in technical analysis, but I think that many people who have just started studying say, “I don’t understand the meaning of Forex Trading Signals in the first place …”. Here, we will explain the “signal” using the most typical moving average line of technical analysis as an example so that even beginners can easily understand it.
The signal is a guideline for predicting the rise and fall of the market price.
If you are collecting Forex information, you will have the opportunity to see the word signal. Many people may have the experience of asking, “Is it profitable to buy and sell according to the signal?” To put it simply, the signal is a point that triggers the judgment of “whether the market price of Forex etc., will rise or fall”.
There is a technical analysis method for predicting the future market price by relying only on charts and numerical values without considering economic trends, the situation of countries and companies, etc. Signals are primarily derived from technical analysis.
For example, there is a method to judge “buy the market” and “sell market” according to how the “short-term moving average” and “long-term moving average” intersect. The signal that indicates when to buy is called the golden cross, and the signal that indicates when to sell is called the death cross.
Beginning of buying market: Golden Cross
A golden cross is a state in which the short-term moving average penetrates the long-term moving average “from bottom to top”. The appearance of the Golden Cross is a “buy signal” as it suggests that the down market has turned into an upmarket.
The beginning of the selling market: Dead Cross
Contrary to the golden cross, the state where the short-term moving average penetrates the long-term moving average “from top to bottom” is called a dead cross. The appearance of a death cross is a “sell signal” as it suggests that the rising market has become a falling market.
The signal is just an indicator! Not an absolute prediction
Earlier, I talked about Golden Cross = “Buy Signal” and Dead Cross = “Sell Signal”. If these Forex Trading Signals could predict all future market movements, nothing would be more convenient. However, the real market does not always move as the signal indicates. It is not uncommon for Forex Trading Signals to occur later than actual market trends. In this case, you will miss the movement of the market. This is a feature of the simple moving average among the moving averages.
In addition, the exponential moving average, which response more sensitively to market trends than the simple moving average, has more “damage” due to its higher sensitivity. For example, there are cases where the signal indicates a turning point in the market price, but the price rises only temporarily.
Whether or not the market moves according to the signal when the signal is generated. This also depends on the crowd psychology of the people involved in the transaction. When using signals, it is important to remember that “just because a signal is generated does not mean that the market will move as it is”.
Forex Trading Signals are convenient! However, don’t forget that the market price is a living thing. The signal shows the trading timing based on technical analysis. It is not impossible to use Forex Trading Signals as a material for predicting future market movements, as explained using the moving average as an example. Still, it does not guarantee how the actual market will move. Is not. Just because a golden cross occurs does not mean that it will be a “buy market”. The same is true for dead crosses.
Forex Trading Signals are one way to predict the market price, but each individual must think and judge “how to use Forex Trading Signals for trading”. If you want to make a mark in Forex, it is important to study chart analysis methods.