How Reliable are Free Online Forex Signals in Trading?

Free Forex trading signals is one of the tools, which recently became more popular among traders. The main idea behind this is that some brokerage companies and Forex news websites essentially post some trading recommendations on a daily basis.
Those recommendations are based on so-called ‘trading signals.’ They basically represent the technical indicators, which are either bullish or bearish signs for the given currency pair. Consequently, the market participants can take a look at those signals and make their trading decisions accordingly.
Free daily Forex signals can be a very valuable tool for traders, especially for those who have difficulty with coming up with new trading ideas. Consequently, market participants can use them for guidance and analysis.
However, despite its obvious advantages, trading signals do have their imperfections as well. Firstly, there is no such thing as trading signals with 100% accuracy. In some cases, they can be wrong, just like even most experienced professional traders. The second issue here is that most trading signals are entirely based on technical indicators. Therefore they do take into account the fact that major economic announcements can lead to significant reversals in the market.
Therefore, trading signals can be useful for some guidance and trading ideas. However, basing all of one’s trades on this tool without any analysis can be very risky and might not lead to long term success.

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Free Forex Signals Explained

For some traders, especially the beginners, going through dozens of currency pairs and their charts in order to find suitable trades can be a difficult task. After all, it can happen that the market participants can not find any entry point with any currency pairs.
This is where the free Forex signals can be a handy tool. All traders need to do is to check the latest FX signals online and analyze the viability of executing such trade. Generally, the free trading signals at the Forex news websites, include the following pieces of information:
  • Currency pair
  • The current market exchange rate
  • Entry price
  • Timeframe
  • Recommended Stop-Loss order
  • Recommended Take Profit order
  • Current status of the signal
The last item on our list identifies the status of the signal, which means that if it says ‘active’ then this means that this trading recommendation is still active and traders can make use of that. After some time passes, the signal might be close due to changing market conditions. Consequently, this means that those signals are no longer active and should be ignored.

Benefits of Using FX Trading Signals

There are many free Forex signals online traders can use as some sort of guide for entering new trades. Instead of checking and analyzing the charts of dozens of different currency pairs, traders can just take a look at the recommendations and only focus on those securities.
To illustrate this point better let us take a look at this 1-hour Heiken Ashi USD/CHF chart:

The fact of the matter is that recently several Forex news websites issued a new trading signal, recommending traders to buy the USD/CHF currency pair. Looking at the chart above, their line of reasoning seems quite understandable. After reaching the bottom at 0.9060 level during the July 31st session, the pair seems to be recovering.
In fact, after this development, the US dollar has already risen all the way up to 0.9173 level, which is 113 pips higher than several days ago. The several numbers of green candlesticks on our Heiken Ashi chart seems to confirm the view that the currency pair might be at least in a short term upward trend.
In addition to posting the latest Forex free signals online, many websites also publish the statistics about the past rate of accuracy of their trading recommendations. This enables traders to compare different sites and determine which one offers the best free Forex signals.

Imperfections of Free FX Signals

Despite all of the benefits of using free Forex signals, it is important to point out that they can not guarantee a 100% success rate. In fact, they have several imperfections. Firstly, it is essential to realize that each trading signal is determined with a particular time frame in mind. For example, some signals might be derived from 5-minute charts, while some others might come from 1-hour or even from a daily chart.
This is why the most Forex news websites do specify the time frame used for determining the signal. The fact of the matter is that in many cases the short and long term trends in a given currency pair might diverge from one another considerably.
In our previous example, we have already discussed the short term trends in USD/CHF pairs on a 1-hour chart. Now, let us compare this to the daily chart of the same pair:

If anybody analyzed the pair solely based on the previous chart, most likely one might have concluded that the US dollar was now in a solid upward trend against the Swiss franc. However, as we can see from this chart, the long term trend with the USD/CHF pair is quite different.
As the chart above demonstrates, the pair mostly moved sideways from the second half of March until late May 2020, without experiencing any significant gains or losses. However, from the beginning of June 2020, the pair began its slide. This downward trend especially accelerated in July 2020, the period where we can see 11 red consecutive Heiken Ashi candlesticks in a row.
It goes without saying that this can hardly be a bullish sign for this currency pair. We do have one green candle by the end of this chart. However, this one candlestick alone is not enough to call for the reversal. So we can see that despite the latest short term trading signal, the USD/CHF pair seems to be still in a solid downward trend.
As we can see from this example, one of the imperfections of trading signals is that they might be more useful for scalpers and day traders, rather than those market participants with long term trading time frames in mind. However, it is also worth noting that nowadays some Forex news websites do offer signals for long term traders as well, although not all of them are free to use.
Another major weakness of the trading signals is that they typically only focus on technical indicators. The fact of the matter is that traders might find the best Forex signals free of charge, but most likely they do not take the latest economic releases or events into account.
This can be problematic because we have many examples, where the major announcements or events have significantly altered the direction of the exchange rate. To illustrate just one example of this, let us take a look at this daily GBP/USD Heiken Ashi chart:

As we can see from the above diagram, the pound was moving sideways during Spring 2016, however, in June it developed a strong upside momentum with 5 relatively large green Heiken Ashi candles in a row.
Now from high insight, we all know what happened next. However, that likely most trading signals would have recommended buying GBP/USD. It is understandable, since at that time, there was no technical indicator, pointing at the possible dramatic collapse of the pound’s exchange rate. As mentioned, it was quite the opposite, with short term technical indicators pointing to the upside.
The fact of the matter is most likely technical signals had very little to do with the dramatic decline of GBP/USD. Instead, one of the catalysts for this move was the outcome of the European Union membership referendum in the United Kingdom.
The decision of the UK voters to leave the EU has led to a significant decline in the pound exchange rate, with the GBP/USD pair falling all the way down to $1.25 level just in a matter of weeks. In fact, this outcome also had long implications on the currency pair, since even after 4 years’ time, the pound never managed to return to $1.50 level with the US dollar, as it was before the referendum.
It goes without saying that events with such magnitude are quite rare. However, as we can see from this example, some events can have a dramatic impact on the exchange rates. Consequently, relying solely on the Forex trading signals and ignoring the latest fundamental developments, might not be the best strategy for long term success.

How Traders Best Utilize Forex Free Signals?

Considering the upsides and drawbacks of using Forex signals, the obvious question remains: to what extent traders should rely on this tool?
Well, traders can certainly use free Forex trading signals daily for coming up with new trading ideas. However, instead of simply copying the trades from those recommendations, traders need to conduct their own analysis.
Firstly, the market participants can check the time frame for the trading signal and compare it to their trading style. For example, the latest signal from a 5-minute chart might be very handy for scalpers or day traders, but it might not be that useful for long term traders.
The second stage is to take a look at the economic calendar and find out whether there are any upcoming economic news releases or other events that might have a significant impact on the currency pair in question.
If there is a high-risk event coming up, then traders might consider choosing other currency pairs for trading. This is because the market reaction to those announcements can sometimes be highly unpredictable.
Finally, traders might consider how the latest trading signal fits into their overall trading strategies. If the latest signal passes all of those tests, then it might be a good idea to go ahead and open the recommended position. On the other hand, if it fails one or several of those tests, then it might be a better idea for traders to consider some other options at their disposal.
The main idea here is for traders to make their own decisions, instead of deferring this process to Forex trading signals. It goes without saying that it is a handy tool, however, just like any other Forex indicators and strategies, it can not provide traders with a 100% success rate.

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Free FX Trading Signals - Key Takeaways

  • Trading signals essentially represent the trade recommendations, posted on some Forex news websites. Besides the currency pair and position, the post also specifies the timeframe of the chart, where the signals have appeared, as well as the recommended level for placing stop-loss and take profit orders.
  • Trading signals can help traders, especially beginners to come up with new trading ideas. By analyzing those latest signals, the market participants can choose the ones which are most compatible with their trading style and strategies.
  • One of the imperfections of the trading signals is the fact that they are typically based only on technical indicators. Therefore, it might be a good idea for traders to use this tool in conjunction with the Forex economic calendar.

FAQ: Forex Trading Signals

How do the premium Forex signals differ from the free ones?

What happens with some of the Forex news websites is that they display some number of trading signals for free. However, they do offer traders to subscribe to their premium services as well.
This includes a large number of trading signals so that traders might have more variety of trading ideas to choose from. Some additional services include email or phone alerts for new trading signals. Some sites also offer full access to past closed signals and performance reports, so that traders can analyze how those recommendations performed in the past.
Recently, some Forex news websites started to include economic calendar alerts with their premium trading signals service. This lets the market participants identify which currency pairs are likely to be affected by upcoming economic news releases.

What are some of the most common mistakes traders make with Forex signals?

One of the most common mistakes traders make with trading signals is that they simply copy the recommendations at face value, without conducting any sort of analysis on their own.
It goes without saying that there are some reputable websites that have a relatively high degree of accuracy, however, even those sometimes make wrong predictions. Consequently, it is always a good idea for a trader to conduct his or her own due diligence, before making trading decisions.
Another very common mistake is to ignore the Forex economic calendar while basing trades on trading signals. This can expose traders to unnecessary event risks.
Finally, there are some traders who have successfully used trading signals, but sometimes still end up with net losses at the end of the month. One of the obvious reasons for this is the fact that some of them do not set proper risk and reward ratios in place.
For example, if a trader makes $100 gains with 4 trades and loses $500 with one position, his or her ratio of winning trades will be 80%, which is very impressive. The problem here is that the trader will still end up a $100 net loss. Consequently, maintaining a 2:1 or higher risk/reward ratio can help market participants to earn higher payouts on winning trades, compared to losses with losing positions.
Are there trading signals for commodities?
Many Forex news websites do offer trading signals for commodities. However, when it comes to free services, the choice is typically limited to oil, gold, and silver prices. In most cases for the trader to have access for signals for other commodities, they have to purchase the premium subscription.
What is the realistic accuracy rate of some of the best free Forex trading signals?
It goes without saying that any Forex signals service should have a higher than 50% accuracy rate. If that is not the case, then traders can potentially achieve better results by a coin toss, rather than by using their services.
In general, having at least 60% accuracy is something many traders would expect from a good Forex signals service. Obviously, the higher their accuracy rate the Forex signals have, the more attractive they become for traders.
The problem here is that in many cases it is difficult to verify the truthfulness of the rates of accuracy published on some of the Forex news websites. There are some Forex trading signals services that claim to have over 85% or even 95% accuracy rate.
However, this is highly unlikely, considering the fact that even some of the most successful professional traders usually can not maintain such a high ratio of winning trades on a consistent basis. Traders do achieve impressive results for some periods of time. However, maintaining 90% or 95% accuracy consistently is not a very realistic goal even for most experienced traders.
The fact of the matter is that traders do not necessarily need to achieve such high ratios. With the proper risk/reward and money management methods, one can potentially earn consistent payouts even with a 55% success rate.
Consequently, it might be a better idea to test the accuracy of the trading signals services on demo accounts, before using those in real trading.

Can traders combine trading signals with fundamental analysis?

Actually, if traders combine the trading signals with fundamental analysis, it does have the potential to increase one’s trading performance. However, the exact methodology of this process will depend on the timeframe of trades.
For example, day traders can make use of the economic calendar, in conjunction with the latest trading signals. Here market participants can analyze whether the latest economic news releases could push the exchange rates in the same direction, as the signals suggest.
When it comes to the long term traders, they can start analyzing the fundamental indicators of the currencies involved in the latest trading signals. Market participants can compare such indicators as the relative nominal and real interest rates, the economic growth and inflation rates, the purchasing power parity indicator for each pair, and other measures.
If the Forex trading signals match the conclusions of this type of analysis, then traders might decide to follow those recommendations. On the other hand, if they contradict the conclusions made by the fundamental analysis, then it might be a good idea to avoid opening positions with this currency pair and look for trading opportunities elsewhere.
So as we can see here, combining the latest Forex trading signals with fundamental economic indicators can certainly add the depth and reliability to the analysis and can potentially improve one’s long term trading performance.
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