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Using Trading Signals
Trading signals are
specific entry and exit points that are determined by a third party which
specializes in such signal generation. The success of such
signals is dependent upon (1) the skill of the signal
provider, and (2) the discipline of the trader in accurately
implementing the trading signals. As with any trading strategy, many
trading signal programs are successful overtime when followed
consistently, but can be unprofitable when even a few of the signals are
second-guessed by the trader.
Trading signals generated
by third parties should therefore be viewed as an alternative or addition
to developing one's own trading strategies. Once you have decided on
a signal provider, you can focus on accurately entering
and exiting based on
the generated signals.
Two important issues on
evaluating performance:
- Evaluate your actual
account performance in relation to the published performance of the
Signal Provider over the same period of time. Be sure you
understand why differences exist, if any. Dramatic differences
could be because you are either implementing the signals incorrectly,
in which case you can work on correcting this process, or because the
published results of the Signal Provider are inaccurate, in
which case you may wish to ask for further detail on published
performance calculation.
-
Evaluate
overall performance with respect to the time period set forth by the
Signal Provider . In other words, if the Signal Provider
anticipates success over a 6-month time frame, you should not
necessarily be discouraged with losing results after the first week or
two.
As
with all trading strategies, be sure to control your position size such
that your account will not be depleted by any typical, and inevitable,
short-term losing period (see controlling
risk). Some Signal Providers may recommend position sizes to
trade, while others will just provide the buy and sell signals.
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