Table of contents:
- 1 What is the best way to start?
- 1.1 1. What are trading signals and signal services?
- 1.2 2. How can I implement the trading signals?
- 1.3 3. When can I trade the trading signals?
- 1.4 4. What does the performance curve tell me about the trader?
- 1.5 5. Possible conflict if trader profits from many trades of his followers
- 1.6 6. What do I get more from in the long run?
The providers of the trading signals are very different in terms of quality. How traders can distinguish bad from good signal services for DAX, Forex or stock markets, you can find out here.
If you have already made a few trades on your own, you know how difficult it is to achieve constant profits in trading. The trading process generally consists of four important elements, all of which must be observed.
Especially for beginners it is difficult to get an overview and prioritize all topics.
Many trading beginners ask themselves the questions at the beginning:
What is the best way to start?
With Chart Technique Or With Fundamental Basic Knowledge? And What Do I Actually Want To Trade?
Often you can’t see the wood for the trees and you look for help in the trading process.
Some of you have already halved your account capital and are now happy to find an experienced trader whose trades you can view and reproduce.
1. What are trading signals and signal services?
A signal is known to be a hint or even a warning. In trading we make money by betting on rising or falling prices and the market follows our idea.
With trade signals, there is an (“experienced”) trader who sends a signal to his readers/followers when he sees a chance for a winning trade. The trader can record this information and decide whether or not to trade the trade proposal.
With this we have clarified the basic concept of trading signals, but the most important questions are still open.
I have recorded the six most important questions and at the same time answered them with detailed hints and tips.
This way you know what to look for when choosing your signal service and can make a sensible decision.
These questions about trading signals you have to clarify:
2. How can I implement the trading signals?
There are several ways to receive and implement the trading signals of another trader. The first variant describes the classic market letter. Formerly by letter or magazine, today there is the email. This medium is also used without a complete market letter to pass on the signal. The e-mail typically contains information about the underlying instrument being traded and the target.
Another variant is the Trading Chat. This is a protected space where a group of traders can discuss trades and setups and either only the provider of the signal service or all users can place live trades.
You have exactly this possibility in our Trading Lounge (read more here).
Last but not least, there is the Social Trading, which was created in the course of digitalisation. Well-known providers are Wikifolio or Ayondo. There, traders can have their portfolio traded in real-time or automatically. The investor (private investor) can purchase a certificate (Wikifolio) and thus participate 1:1 in the trader’s portfolio development, or open his own trading account via managed accounts, where the trades of the “pre-trader” are automatically duplicated.
How quickly do the trading signals reach me?
Of course electronically transmitted signals are faster than the classic letter. But email is not necessarily the fastest medium either, because I have to receive, perceive, open and interpret the email and then place the order with my broker. Even in the trading chat I do not hear directly about a live trade when I am not online.
The social trading approaches are of course far superior when it comes to speed. But here I do not have the possibility to make my own decisions. Every trade of the trader is implemented and I am affected by it. In the positive and in the negative case.
3. When can I trade the trading signals?
If you are interested in the signal services via email or the trading chat, you have to consider which trades you want to trade and which you don’t.
Time is an important factor here. Are you working and only online in the evening? Then it makes no sense if the signal generator offers the DAX breakout strategy at 09:00 and US indices at 15:30. You would be able to enter much too late.
The time aspect also includes questions about trading style. If the signalman is scalping and ends the trade after 15 points, then it makes little sense to announce the trade to you by mail. By the time you would have completed the implementation, the trade would have already ended again.
4. What does the performance curve tell me about the trader?
If I want to follow trading signals, I expect top performance from the Vorturn… Vortrader!
However, many, I would even say the majority of signalmen, is not permanently profitable! This does not mean that there must not be any loss trades (that would be nonsense, because loss trades are always part of trading), but that after a relevant number of trades (e.g. 100) more losses than profits were made.
It is also negligent to only pay attention to the return when choosing your signal generator. Here is an example:
A trader advertises his stock market letter with the slogan: “50% profit in 4 days!”
Can I tell from this whether the trader is good or bad?
No, but I have a premonition. Because this result in such a short time was only achieved by an exorbitantly high leverage. Professional traders use only very small levers or even none at all, because the primary goal is to protect their own account (and that of the investors).
So one should have a verified performance curve of the trader shown. Short note: My performance curve is published regularly in the Trading Lounge.
5. Possible conflict if trader profits from many trades of his followers
Especially in the managed accounts segment there is a potential conflict of objectives. This has to do with the construction and implementation of trades at one of the many online brokers.
Managed accounts are primarily offered by CFD and FX brokers. There, as mentioned above, the investor receives his own account which is linked to the trader’s account.
Now many brokers have additional contracts between trader and broker, which give the trader an additional income (besides the actual trading performance). The talk is of so-called “Rebates”.
According to this, the trader earns on each trade made, regardless of the success, at the spread (which the customer pays).
The trader trades 1 LOT in EURUSD and the spread is 2 pips. The broker grants the trader 1 pip of the spread for each trade. If you consider that a day trader makes 100-200 trades per month depending on the trading setup, he earns easily four digits here.
Where is the incentive now?
There is a real danger that the trader will lose sight of the actual goal, namely a solid trading performance with low risk.
It is therefore perfectly possible to have the trader’s contracts with the broker shown to you and to address the issue.
6. What do I get more from in the long run?
Finally, I would like to take a critical look at the design of signalling services.
There is a nice saying by Confucius, which I encounter again and again in my life (and especially in trading):
Give a man a fish and you feed him for a day, teach him to fish and you feed him forever!
It has always been and still is important to me to be independent and as independent as possible. That is also the way it is in trading.
In my opinion, everyone who is interested in trading has more money in his wallet in the long run if he acts independently and becomes a successful trader. Of course, there is a lot of learning to do at the beginning, but if you persevere and learn in a disciplined manner, you will most likely earn good money.
You can learn this approach in our Trading Lounge.
Here you will find daily trading signals (spread over the day) and the Trading Chat enables a permanent exchange. Even more importantly, you can develop very quickly thanks to the high-quality content in the Lounge.