Too time-poor to manually trade or design your own automated forex system? MetaTrader 4 is the answer! MT4’s built-in forex signals could help you to achieve your trading goals. These forex trading signals allow you to copy the trades of consistently profitable traders, reaping all the reward with very little effort.
There are literally hundreds of different signals available, the most popular forex signal provider has realized a return of 2759% in less than 2 years, is currently managing over 1.6 million USD and has more than 1500 subscribers. Though MT4’s forex signals can help you realize impressive returns with very little effort on your part, like with any automated trading system, there are a few things you should look out for and be aware of when selecting a forex signal.
Paid or Free Signals?
The first thing you’ll notice when you delve into the world of forex signals, is that there are both free and paid signals available. Though some of these free signals may be of high quality, we’ve all heard the saying ‘if it sounds too good to be true… then it probably is!’
If the free signal you are looking at is so good, why isn’t the trader charging for it? Granted, they could just be extremely successful and generous, but chances are there is some flaw in their strategy which prevents them from selling the signal to paying subscribers. Having said that; if you are just getting accustomed to using MT4’s signal features, it is a great idea to familiarize yourself with the process by subscribing to one of these free signals on a demo account.
Signal Performance Metrics
Just like when you are analyzing your own performance or shopping for an Expert Advisor, there are a few key performance metrics you should look for when comparing signals. Growth is a figure that leaps out straight away, though it is important to remember that the signals you are looking at all have different inception dates. Luckily, the MT4 platform also tells you the number of weeks the signal has been live for. To compare apples with apples; simply divide the growth figure by the number of weeks since inception, to get a rough idea of weekly performance. (Note this figure will in inflated due to compounding effects).
The next thing to take a look at is the drawdown %, this measures the maximum peak to trough equity loss the signal has experienced. Ideally, you should look for signals with less than 30% drawdown, though this will ultimately be determined by your personal risk tolerance. Regardless of your risk tolerance, it is extremely important you are being compensated appropriately for said risk – the signals growth should be at least double the maximum drawdown. It is also important to remember the limitations of historical performance analysis: the signal may well experience a larger drawdown at some point in the future.
Last but not least, you should take a look at the Win %, Profit Factor and Average Win / Average Loss ratio (Reward Ratio). Ideally, a signal should have a Win % above 50%, Profit Factor exceeding 1.5 and Reward Ratio greater than 1. Having said that, a system with a 93% Win % is unlikely to have a positive Reward Ratio and vice versa.
Getting to Know Your Forex Signal
Once you have familiarized yourself with the signal’s basic performance metrics, it is important you look a little deeper and gain a greater understanding of how the signal works. Is this a scalping signal? Or a trend follower? Scalping signals are much more likely to be broker dependent and also suffer significant detrimental performance divergence as more people subscribe. Though the signal’s trades are likely hidden until you subscribe, most signal providers provide a short description of the strategy and failing that, you can compare the total number of trades to the weeks since inception. If the signal has 50-100 trades over a year, you can reasonably infer it is a medium / long term strategy. Conversely, if the signal has 1000s of trades in a one year period, chances are it’s a scalping system.
You may also want to look at what pairs the signal trades on, read user reviews and check out the ‘What’s New’ tab. User reviews are very handy, as you can read about other user’s experiences before purchasing a signal subscription. The ‘What’s New’ tab is also very useful: the best signal providers publish regular updates regarding their recent performance and upcoming changes to the signal and underlying strategy. Once you have familiarized yourself with the signal and are satisfied with everything you’ve seen, it’s time to purchase a subscription!
Importance of Demo Testing Your Forex Signal
Great, so you’ve found a system that looks awesome with a modest subscription fee and you can’t wait to try it live and start making money … STOP. Just like when trialing a new expert advisor, it is essential you test your new forex signal on a demo account first. This can save you a world of heartache. Why is this so important? Chances are the signal provider is using a different broker to you – different brokers have different lot size settings, symbol names, margin requirements etc. By running the signal on a demo first, you can ensure everything is working correctly before risking any of your hard earned money. Even if you are using the same broker and account type as the signal provider, running on a demo first is still a great idea – you can never be too careful!
We hope you have enjoyed this article on MT4 forex signals. Trading using forex signals can be extremely rewarding and requires a lot less effort than manually trading or designing your own forex strategy. Always remember though, familiarize yourself with a signal before subscribing and always run it on a demo account before running it on a live account. On top of the performance metrics listed above, it is also worth looking at the number of subscribers a signal has: if a signal provider has a lot of happy subscribers, chances are it is a solid signal that makes consistent monthly returns!