Trading Signals Forex

When evaluating a trading signal provider, an important thing to inspect is the trading style of the provider. By looking through the trades and identifying its trading style, we can learn a lot about the performance of a trading signal provider and its profitability.

Forex Trading Signals & Auto-Trading – Intelli4x.com

In the previous article we have discussed inspecting the Risk:Reward of a signal provider, to assess its profitability and precision in entries. In this article, we will cover another important aspect of trading style: Trend-following or Contrarian.

Trend Follower vs. Contrarian
By looking in past trades of a trading signal provider (be sure to do so), we could learn whether the provider is trading with the trend or catching reversal points.

Trend-Following are often late entries, entered after a trade was already established at the FOREX pair. They are usually the result of a Moving Average cross, simple indicator alert or a Breakout strategy.

On the other hand, contrarian entries are entries that attempt to catch an exact turning point of price. They usually occur at the very beginning of a new trend, hoping to catch the entire move for more profits.

Which Is Better?
The trading style can give us important information about the experience and true performance of a signal provider.

While trend-following is a legitimate approach that can be profitable, it is usually better in trending markets and suffers great losses in range-bound markets. Trend-Following are also much easier trading systems to implement and imply less trading proficiency than a contrarian one. Moreover, when evaluating a signal provider, a trend-following can produce profits that are nothing but luck – simply because a trend was present at the exact trial period.

On the other hand, Contrarian strategies are much harder to implement and profit from, because great precision in entries is required. Catching an exact reversal point of price requires great trading experience and very few mechanical systems achieve this. Therefore, if a trading signal uses a contrarian strategy profitably, it indicates a much better profitability, and true trading proficiency of the traders.

Conclusion

Trend Following:

• Easier to implement.
• Indicates less technical proficiency.
• Can be profitable due to pure luck, and fail in the long term.

Contrarian:

• Harder to trade.
• Indicate great trading experience and abilities.
• High precision entries are demonstrated.

Be sure to check whether your signal provider is a Trend-Follower or a Contrarian. This can give you immense knowledge regarding its true profitability and performance.