What does being a Signal Provider mean?
Why they do that and what do they gain with Social Trading?
Where do they operate and how can I find the best ones?
Just continue with this post and find the precise answers to these questions.
The origin of a trader
Some traders begin to make Forex trading out of curiosity and then they get passionate, others are simply looking for a way to make money sitting at the computer. Some make trading activities as extra work before it becomes a full-time job, and still others have always done it as a real job.
Understanding the evolutionary journey of a trader is not very important, what really matters is to understand what are its current capabilities and the power of his strategy.
By now we have been in the Forex and Trading world for more than 10 years, and we know a lot of people. We have seen traders that after 20 years of study and practice still had difficulty, because they were committing the same beginners mistakes over and over. We’ve also seen beginners make a mistake just once and don’t commit it ever again, because once was enough for them to learn.
Obviously, a certain number of years are needed to gain experience and acquire the necessary experience to be flexible and be able to react quickly to the market changes.
However, what really matters in the end are the strategy, the results, and the self-control. When a trader studies he does so to create a set of rules. These rules will help him to know if, when, and how to open or close a trading operation.
This set of rules will then constitute his strategy skeleton.
The 3 great Signal Provider’s schools
These rules can be based on three different schools, and on the mergers and contamination of these together.
FUNDAMENTAL ANALYSIS: a signal provider in this field is an expert in interpreting the many news, either monetary, economic and political, that are released every day by the news agencies. When he opens operations, his vision is usually long-term, weekly or even monthly, because usually the news of this kind are not immediately reflected on the price, but in the long run. Sometimes, however, some economic data make the price literally explode in one direction, creating (risky) opportunities of immediate profit. A famous example is the change of the central banks interest rate, like the Fed or ECB respectively on dollar and euro, or the US unemployment data.
PRICE ACTION: a signal provider experienced in the price action does not worry about knowing what are the news moving the market, because he’s convinced that the price action shows everything already inside. In other words, the daily, weekly and monthly movements the price performs are able to show to the trader the intention of the price to take a certain direction in the near future. Doesn’t matter what that specific data says, and how it should be interpreted, the trader believes that the price action has already said everything about what the price want to do, and the direction it want to take.
INDICATORS: indicators are technical tools, often charts, which are used via electronic trading platforms. In the Forex world the most popular and most used by Signal Provider is called Meta Trader 4 or MT4. The indicators available are thousands of different categories. Furthermore, with some computer programming knowledge, they can also be created independently. To name one among all, the most famous is the moving average. The program calculates the values of a certain number of previous periods, chosen by the trader, and reports on the chart the average of these values with a dot. Time passing, these points take the form of a curved line. The trader expert in the use of indicators is able to interpret that behavior and to get indication for guessing the future direction of the price.
Usually we refer to Price Action and the use of indicators as “Technical Analysis“.
In order to respond immediately to a common question, there is no better school than others. It all depends on the trader’s style and his or her preferences.
Most traders, however, specializes in one of these areas, but they also try to fill the deficiencies of each with additional knowledge from the others.
As the trader builds his strategy, he’s able to analyze the results. This doesn’t mean just to look at the results to see if it has gained or not. It means, above all, to analyze how these results have been created, what are the winning percentages, what are the risks of this strategy, what are the weak points, what are the strengths.
This way, that is made also of attempts, testing and results analysis, the trader builds his own strategy, his war machine. On InvestinGoal we show you what are the Signal Provider’s parameters and data to be analyzed in order to understand how his performance take form, but above all, what are the risks in following him.
The best Signal Provider’s quality
Finally, after the strategy and the results, comes the self-control. Yes because, even if a trader has created the most solid and profitable strategy of all time, but he’s not able to comply with those rules, sooner or later he will have big problems, because, as we all know, market does not forgive anybody.
This is one of the main reason why many traders choose to define the rules and turn them into a computer language, creating a virtual machine, a program that trades on their behalf, in a semi or fully automatic way.
These programs, called Expert Advisors or EA, constantly follow the evolution of prices and data, and they open and close operations on the occurrence of specific conditions, previously set by the trader.
These programs are great ways to remove completely the emotional and the psychological factor from a trader’s operation.
However, the machines, no matter how complex, can never replicate human intelligence and sensibility. There are times in the market, in which only a human being can understand what is happening, and decide what is better to do or, even more important, not to do.
Why deciding to become a Signal Provider
The Signal Provider is a trader who has decided to share his trading strategy with other investors. And to respond immediately to a classic question and dispel all doubt
“Yes, Signal Providers are paid to do what they do, they don’t do it for free.”
It would be strange if someone who has a method to make money would share it with the world without wanting anything in return. Signal Providers make no exception. The interesting thing is that, in most cases, it won’t be you to pay them.
The compensation system for the signal provider usually is structured in such a way that they earn only if there are investors who are following their signals and are replicating them using real money accounts.
This means that only those who produce good performance and good results will be able to attract investors eager to follow their signals, and thus make a profit. Bad Signal Providers very unlikely will be able to earn from their Social Trading activity.
Moreover, we must also say that the Signal Provider, from the moment he decided to collaborate with the Social Trading company, he also give it the permission to record every transaction he make, in every detail. This way the company can show the Signal Provider’s historical data to the potential investors, who can then analyze in advance the possible future performance and the potential risks of the trader. In other words, this situation of constant control pushes a Signal Provider to behave well throughout his career, because he knows that every mistake will be recorded and shown to the present and future investors.
This may sound all roses, and a newbie of Social Trading might think that this way it’s literally impossible to go wrong, since sensitive information is visible in advance. The reality however is different.
First of all, it should be perfectly clear to anyone who wants to invest that past performance are in no way guarantees and certainty of future performances. What can, and should, be certain is the protection the investor has to build to safeguard his investment.
Second, the experience shows that many Signal Provider adopt strategies that, at first glance, may seem very good and convenient, but that actually hide very large inherent risks. The good news is that an experienced eye has the ability to recognize these risks from the analysis of the Signal Provider data.
Where are they and How to find the best ones
To answer this question we will not dwell further.
First, find out what are the best Social Trading networks where to begin to exploit the Social Signals Provider.
Next, we have created two specific lists of the best Social Signals Providers for the two main Social Trading brokers. You can find them here:
Doubts? Requests? Opinions? Write us in the comments below.