Hidden Dangers of Free Signals

Hidden Dangers of Free Signals

• What are free trading signals?
• Sources of free trading signals
• Automated trading signals vs. Traditional signals
• Advantages of automated and traditional trading signals
• The hidden risks of free signals
• The most important tips for dealing with free trading signals

Introduction:

Traders in general are always looking for the most accurate information possible, to benefit from it and make profits, either by using it while doing the analysis, or relying on it in making the final decision, whether partially or completely, and with a market characterized by large and rapid fluctuations, accurate information at the right time may be the deciding factor in the success or failure of the trader.

One of these methods is free signals (free trading signals), and the following is a review of this concept and the risks that may surround these signals because of not understanding them or realizing the risks that surround them if they are misused.

Discussing free trading signals is not a rejection of them or doubting them, but rather working to define them and their advantages and present the hidden risks that may surround them, in addition to providing the most prominent tips that can be followed in using these signals to reach goals optimally.

What are free trading signals?

Free trading signals are recommendations or notifications that are produced and sent to the trader through many sources that indicate potential trading possibilities in the currency market (buy or sell suggestions), and these signals occur because of many different criteria, which fall under each of:

• Technical analysis:

 By providing a graphic analysis of the Forex market (a specific currency pair or several pairs) to determine the signal through it the possible entry and exit points and stop loss points.

• Fundamental analysis:

 This is done by reviewing and analyzing successive market news and following all news with the aim of updating the signal in line with market developments.

• Combining fundamental and technical analysis:

 This occurs by combining technical analysis with the contents of fundamental analysis, specifically those important contents that coincide with the timing of technical analysis.

Sources of free trading signals:

Free trading signals can be issued by a seasoned trader and a real financial expert, and signals can also be issued via automated/electronic systems.

In an era of accelerating and superior technology, some signals are now produced by intelligent algorithms based on the accelerating revolution in the field of artificial intelligence that has affected various fields, but the largest proportion of these signals are driven in whole or in part. The International Monetary Fund (IMF) indicated in its report "Global Financial Stability Report 2024" that trading based on artificial intelligence leads to faster and more efficient markets, but also to higher trading volumes and greater volatility in times of stress and is vulnerable to attacks and risks.

As an important statistic that can illustrate the extent of interest in trading based on artificial intelligence, IMF indicated that the share of artificial intelligence content in patent applications related to algorithmic trading has increased from 19% in 2017 to more than 50% annually since 2020.

Automated trading signals vs. Traditional signals:

Through the statistics of electronic trading, in addition to the revolution that artificial intelligence is causing at a very rapid pace, specifically since the end of 2022, it is natural that automated trading signals are the focus of traders' attention to a large extent, but traditional signals performed by the human factor are still present and used and have a great deal of importance in the world of the trader, as will be indicated at the end of this article.

Although the difference between them may seem simple, it is worth noting the difference between them to reach the advantages of each of the signals.

As automated trading signals are created through electronic trading systems, or algorithms designed to identify potential trading opportunities, based on pre-determined data and criteria that fall under both fundamental and technical analysis, and the trader receives these signals via email, text messages, or through trading platform messages.

As for regular traditional signals, they are done through the purely human factor, whether expert traders or trusted financial analysts, who use their experience and knowledge to identify serious trading opportunities, and present them to the trader, through various means.

Advantages of automated and traditional trading signals:

Both Automated and traditional trading signals may share some advantages, such as relying on human or automated experience that is fed by updating algorithms and standards, but there are some advantages specific to each type of these signals, the most prominent of which are the following:

1. Automated trading signals:

• Speed: This is due to the electronic factor that contributes to providing the signal in a way that allows traders to act quickly.

• Objectivity: Automated signals are produced based on pre-determined objective criteria, which means eliminating the influence of human bias or emotion during decision-making by the trader.

• Quickly examining historical data: During the production of automated signals, the same signal can be tested on historical market data, which can increase its reliability.

2. Traditional trading signals:

 As for the advantages of traditional signals resulting from traders or human experts, they are:

• Flexible perception: which suffers from perceiving events and the extent of their interconnectedness and impact, whether on various markets or on a specific market, through follow-up based on scientific and practical experience and in-depth knowledge.

• Trust: There is still a segment of traders who trust the human factor more than the technological factor, specifically artificial intelligence, which some still view as new and still needs time to mature.

• Event experience: Some experts who provide trading signals have experienced events like what happens while providing some signals, which makes them able to analyze based on some of the details they have experienced and realized in a more practical way.

The hidden risks of free signals:

Reviewing the hidden risks that may lie behind free trading signals does not mean denying their importance or questioning them in general, but the awareness of all traders of the hidden risks that may result from free trading signals is important to enable them to identify a good signal, understand it, and determine how to follow it according to their strategy and in a way that ensures that they achieve their goals in the best possible way. The following are some of the most prominent of these risks:

•  Lack of flexibility always: Whether in traditional or automated signals, flexibility cannot be guaranteed with the ever-changing market conditions, as the human factor may overlook an event, or the automated aspect may depend on predetermined criteria that do not match the new developments and sudden events.

•  Over-reliance: The most prominent risks that a trader may be exposed to are reliance and constant dependence on signals in making a decision without realizing, understanding, or comparing it with his personal analysis or the analyses of other experts.

• Cost trap: This risk refers to both free signals that may have two faces, the first is attracting new traders to rely on them without verifying and examining the source, and/or distrust of the free signal and moving towards paid signals that increase trading costs, especially if they are followed or responded to incorrectly.

• Technical problems: Whether in traditional or automated signals, both methods may be exposed to problems of power outages, whether at the source or the receiver, which may expose the signal to error in the timing of display or error in producing the signal as a result of an unexpected power outage on the systems that produce this signal.

• Lack of trading credibility sometimes: Many free signal providers disclaim any responsibility for any consequences resulting from a wrong signal or any intentional/unintentional error while providing the signal, and the signal may sometimes not be provided according to the complete or reliable information.

• Sometimes exploited for manipulation and fraud: Some free signals may be a means of fraud, especially used against new traders who are not fully aware of the concept of free signals and the advantages and hidden risks that may be involved (Check out the article “How Scammers exploit New Traders”)

• Risks of losing confidence quickly: If a trader is exposed to some wrong free signals, he may quickly leave trading, due to losing his confidence in the world of trading resulting from frustration with the information and advice he has been exposed to.

• Threat to financial stability: As mentioned in previous articles, traders leaving the world of trading quickly, or inflicting losses on them repeatedly, may expose the trader and the economy to significant financial losses.

The most important tips for dealing with free trading signals:

Free trading signals are an important means in the world of trading, because it is a fast-paced world full of fluctuations and events, whether expected or surprising, which makes them one of the primary means of understanding what is happening through what experts present in terms of opinions based on experiments and scientific opinion. The following are the most important tips for dealing with free trading signals:

• Examine the party providing the signals: This is done by examining the mechanism through which the signals are provided, and examining previous signals and their success rate, whether by reviewing previous opinions, or examining the previous signal for a specific tool with the performance of that tool while providing the signal.

• Examine the standard deviation of the success level: After you have identified a good number of previous signals, review the level of convergence of the size or success rate of these signals, for example: if the number of good signals is 10 out of 15, how much success was achieved for the ten signals, and what is the degree of consistency with these signals, as one highly successful signal can maximize the level of successful signals even if the rest of the signals have a low level of success.

• Check signals at peak times: This check adds a good thing to know if the signal is effective during times of market volatility, such as elections or the date of an important economic statement, for example.

• Check the consistency of the signals: This is done by determining the size of successful trades and their spacing, which helps increase confidence that the signals were performing relatively and scientifically, not by luck or chance.

• Check the free signal provider: This is done by asking about the provider's reputation and experience, and whether he provides advice that is consistent with your financial size or the strategy that you want to follow or actually follow.

• Compare different signals: It is okay to make some comparisons between signals for a specific instrument at the same time, in order to know the extent of consistency and the lack of complete difference in direction between the two signals, such as one indicating an increase and the other indicating a decrease.

• Be patient and careful: It is recommended to review the trade after reviewing the signal, to ensure its accuracy in tracking the market, or wait for a stronger signal that increases your confidence in the free signal.

• Type of sources: Rely on multiple sources of information, not just free signals, to make the final trading decision.

Conclusion:

In conclusion, free trading signals remain a powerful tool in the world of Forex trading, but using them consciously and cautiously is one of the most important things that increases the likelihood of success in using these signals.

Free signals are also an important means of learning and gaining experience, especially from those who have a great deal of practical and scientific experience that they reflect while providing trading signals.

Here, it is worth advising all traders to achieve a balance between using signals and developing personal skills and self-trading experiences, to make the most appropriate financial decision with the least amount of noise that may surround the trader while making that decision.