Should You Use Trading Signal Providers?
Over the years, I’ve had many questions about signal providers. Do they work? Are they for everyone? How do you really measure their accuracy? And even, WHY you would provide signals?
The only reason I asked that last question over the years was because I genuinely believed that providing signals would somewhat take the trader’s focus off their own trading. And they would be left to deal with everyone asking questions about their stop losses, their targets, and why their trades went the other way etc!
Today I will provide some insight into signal providers, so you don’t have to waste your time thinking about them as I did.
- The negatives of signal providers.
- If signals are necessary at all?
1. The NEGATIVES
Different account sizes
A signal provider may provide instructions to enter the market at a certain price, with a specific marked out stop-loss and a target. The unfortunate part is risk management. 1% of the signal provider’s account could be 10% of your account.
If the signals produce 3 losing trades, the signal provider will lose 3% vs. 30% for you.
Entry points are crucial!! Even 10 pips makes a huge difference. For example, if you entered 15 minutes after the signal was provided, you may find yourself in a drawdown because:
- The price is has moved past the ideal entry.
- The spread would kick in, and you would have to wait for another opportunity to enter.
As mentioned earlier, entries are crucial. You need to be alert and enter as soon as the signal is provided, or the signal may be invalidated.
Another thing to note is each trader has different expectations. One trader looks to make 2% on a trade with equity of $10000. Another trader may be looking to make 5% on the same trade with a $200 account.
You do not learn how to trade. Signal providers don’t teach you how to trade. They just tell you when to trade. This means the different personality types and characteristics of each trader is not taken into consideration.
2. Is it necessary??
For success? Absolutely not. Learning and being involved in the markets is necessary! You do not become a trader by following signals. You become an unknowledgeable robot.
If you are looking to make a couple of bucks and are willing to take on the risks, then go ahead and do so. However, I would suggest a far better alternative to signal providers (if you do not want to trade for yourself).
The alternative is getting an investment manager to manage your funds so that you can hold someone else accountable for the results.
But if you want to make high returns, you would be better off learning to trade the Financial Markets and executing yourself!
So happy learning Traders!