Free Forex signals is a popular tool of many currency traders. According to my October 2009 poll, 79% of this blog’s readers use some signals, and almost 76% of them prefer free signals for their Forex trading. But are free signal services effective? Are they really free? Or do they serve some other purpose? In this article I’ll try to explain how the majority of such “free Forex signal schemes” work.
First of all, I must say that I didn’t do a constant real-time monitoring of hundreds of free signal services that are out there on-line. It would be technically impossible and unneeded. I tried to examine the signals posted on various Forex forums (including EarnForex forum) and provided by some sites. In almost all cases the scenario was quite the same.
Such free signal service usually starts as forum topic where the author shares his signals in a rather clear form but without any explanations. Daily or weekly results (positive, of course) are reported in pips. Such forum topic draws attention from not-so-experienced traders and they began to become interested in getting these signals. The author continues posting free signals until he sees enough followers and then switches to a private signal posting. It usually includes some e-mail subscription (via his site) or a simple mailing of the signals. After some short time these signals become paid and the author posts them via subscription for a fee.
The problem is that until you start receiving this signals via some convenient mean (like e-mail or SMS) regularly and follow all the signals in time you can’t measure their effectiveness. And this effectiveness is far from good. There are certain problems with the quality of these signals and their delivery:
Signals aren’t accurate. They often fail to trigger and often trigger only to hit stop-loss soon. I’ve followed several signal services post factum and their total result was negative.
The author changes positions and acts against signals without warning. For example, if a signal was for EUR/USD to buy at 1.4000 and sell at. 1.4500. He can write in his next post that he closed the trade at breakeven (1.4000), while the majority of the followers would have waited for a target and then would lose at stop-loss.
Total pip count is manipulated to present an over-successful result. Authors vary the amount of lots to increase the pip count of the profitable trades (for example +40 pips with 2 lots become +80 pips) and to decrease the amount of lost pips. The signal followers usually know that only from the after-trade post of the signal provider.
So, what’s bad in such signals? They are free after all and you have a choice whether to follow them or not. But such free Forex signals are not only a waste of time, which alone is a reason good enough to stay away from them, they also keep you from learning Forex, as no analysis is presented to back the signals. You also have a very high chance of losing your funds if you feel risky enough to use those signals on real account. And then again, you’d have to start buying those signals after a certain period, which would be a waste of money.
I’d recommend ignoring free Forex signals, especially if you are new to trading. It’s much better and effective to follow the free analysis posts or videos, which are plenty on-line. At least you’ll be learning to analyze the charts or fundamental indicators and keep yourself up-to-date with the markets. Signals is a bad thing to depend on in Forex.
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