Choosing a good Forex trading signal provider is not easy. There are many forex signal services that promise much but don’t deliver, and on the opposite: many services which keep a low profile and are a goldmine of profits. In this article I will attempt to give several indicators of a good trading signal service.
Good Risk:Reward Ratio
Require that the ratio between average win and average loss (or average take profit divided by stop loss) is at least 1.5. This size of ratio ensures that this is a services with high technical ability in forex trading, and can pin-point exact entries to trades. This ensures small losses relative to profits and therefore better performance. Smaller Risk:Reward indicates inability to ride profits, improper stop loss set and sometimes improper risk management.
Average, Not Too Good Win Rate
I would require an average win rate, between 40-65% winning trades. Signals with win rate above 70% are extremely hard to find, and practically impossible to provide. If a forex trading signal service claims to have 80-90% hit rate, it is usually false and even if true, may be the result of improper risk management. Trader can trade without Stop Loss and a very tight Take Profit, and close many trades with profits, thus achieving 90-100% hit rate. This approach is disastrous. While this method can work for the short term, in the long term one big loss will wipe out the entire profits.
Objective Performance Reporting
While this is a feature not many forex signal services provide, it is a very good sign when it appears. Some forex trading signals report their trades in real time to objective, unbiased sites like mt4stats or ForexPeaceArmy. Thus, they disclose actually results that cannot by manipulated. If a forex signal services offers such feature, it indicates high degree of confidence and honesty – and therefore a very good forex signal.
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