How to Generate Signals with Forex Trading Systems
Generating Forex MT4 Free Signals - MT4 Signal Indicators
The only method of forex trading currencies is through trading signals, It is best to learn how to generate these trading signals for yourself, this way you do not have to rely on other traders to generate them for you.
Generating trading signals is not easy and requires you to have a lot of forex technical analysis knowledge and experience, but the earlier you begin practicing how to generate these trading signals for yourself the better it is for you.
A good technique of how to practice generating trading signals with trading systems is to open a free practice Forex practice account & test your trading signals on this practice account risk free without risking your money, then once you have tested your forex strategies & they are profitable on the demo practice account you can then use these forex trading signals on a live forex trading account.
The technique of how to practice generating these forex signals as well as how to back test the forex trading signals on the demo account using the MT4 platform is discussed below:
So, How Can a Trader Generate Forex Trade Signals?
The best method of generating forex trading signals is through trading systems, You can Learn how to come up with systems from the lesson how to create Trading Systems on the right navigation menu under the topics Key Concepts.
A Forex trading system is a combination of one or two or more technical indicators with written trading rules of how these indicators will generate these forex signals.
Take an example of the simplest trading system or strategy known as moving average crossover method. A buy signal or sell signal is generated when there is a crossover of the 2 moving averages: either a buy signal for an upward moving average crossover or a sell signal for downwards trend.
Generating Forex MT4 Free Signals - Signals MT4 Indicator Strategy Moving Average Crossover Method
The trading system example below shows a system using the above moving average strategy combined with the RSI and MACD indicators to generate buy & sell forex trades.
Example of Generating Forex MT4 Free Signals - Forex MT4 Signal Indicator Strategy
When it comes to generating buy & sell signals, forex traders should use simple forex systems to generate these trading signals.
Generating Forex MT4 Free Signals - Buy & Sell Forex Signals Strategy
Forex Systems - MT4 Indicators
An example of a simple Forex system that works, is one that is a combination of:
- Moving average cross-over strategy
- RSI
- MACD
The written forex trading rules are:
Generating Forex Signals Strategy System Examples
Forex Trade Rules:
Buy Signal is Generated when:
- Both Moving averages going up
- RSI value above 50
- MACD above center line
Sell Signal is Generated when:
- Both Moving averages going down
- RSI value below 50
- MACD below centerline
Generating Buy & Sell Forex Trades - Example of a Strategy
Exit Trading Signal
Exit signal is generated when MA, RSI and MACD indicator give a signal in opposite direction.
The chart time frame to use is 1 hour chart time frame or 15 minutes chart time frame depending on what type of trader you are.
For a beginner trader the above written trading rules will give good buy & sell forex signals, the only thing that a trader needs to do is to have the discipline to follow the written signals rules the exact way they are, and wait for a buy or sell trade transaction to be indicated by your forex strategy & trade after the signals have been generated, not before they are generated.
Back Testing
Generating Signals with a trading system is one of the easiest method to trade forex, it is the best way that a beginner can attempt to determine the direction of the market trend with a good level of accuracy, and with a little back testing on practice trading account so as to gradually increase the level of accuracy of this trading signals strategy
The best way to back test a forex strategy is by following these 2 steps:
- Paper Trade
- Forex Demo Trade
Forex Paper Trading - This method of testing a trading system involves placing your trading system on the forex charts, then take the chart back to a particular date, 3 months back for example, and then using this chart history to determine where your forex strategy would have given buy, sell and exit forex signals. Write down these points and the profit per trade transaction on a piece of paper and then calculate the total profit after you have recorded a good number of forex trades such as 50 paper trades transactions and determine if your trading method is overall profitable, the win ratio, the loss ratio and the risk:reward.
This is an ancient method of testing forex systems which was used by traditional traders when there was no online currency exchange markets or computers for that matter, the trader would use something like the A3 or A2 paper, graph format paper and plot the trading charts manually (Imagine plotting the charts on your forex trading platform by hand every day or every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online forex market and plot the charts on paper, anyway for our paper technique examples, just a sample data of 50 trade transactions is all we need.
A good forex trading tool to use to backtest your system is known as the MetaTrader 4 Step by Step Tool. Found in MetaTrader 4 charts tool bar of MetaTrader 4 platform, If you want to find the charts toolbar on the MT4 platform it is at the top of MT4 platform. If it is not: Click View (next to file, top left corner of MetaTrader 4)>>> Toolbar >>> Charts. Then click Customize button key >>> Select Step by Step >>> Click Insert >>> Close.
MetaTrader 4 Platform Chart Tool Bars - How to Trade Forex for Beginners
MetaTrader 4 Chart Tool-Bars - Step by Step Button for Back Testing Forex Trading Systems Explained
Once you get this MT4 tool you can move your forex chart backwards, & use this MetaTrader 4 tool to move the charts step by step while at the same time testing when your forex system would have generated either a buy or sell trade transaction, and where you would have exited the trade, then write down the amount of profit/loss per forex trade transaction & out of a sample number of forex transactions you would then calculate the overall profits/losses generated by the trading strategy.
If your forex trading strategy is profitable on the paper then, its time to demo FX trading trade & testing if the it is profitable on the real market as it is on paper trading method. This is the process of testing or back-testing a trading system.
Maintain a Forex Journal to keep track of profitable forex trades, & determine why these trades were profitable. And also keep a log of all losing trades, determine why these trades made a loss and the avoid making these same mistakes the next time you trade using your strategy.
Tweak your forex trading system until you get a good risk: reward ratio, with forex trading signals that you generate. Aim for a good risk: reward of 3:1 and a win ratio of above 70% is a good ratio, with good forex money management even a strategy with a win ratio of even 30% i.e. Less than half of your transactions make profit you can still make a profit. You might want to read this topic to know what the table below is all about: Risk : Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategy - Forex Trade Strategies Described
Read Money Management Methods Guide
A manual forex trading system is still the best way to generate forex signals compared to automated trading systems, a manual strategy is a better method and is also much simpler to implement.
However, other traders prefer automated Forex trading systems & for those then they can check the information on this page MQL5 Expert-Advisors and automated trading systems.
You can also view our extensive list of forex strategies topics that provides you with various methods of buy & sell technical analysis using a number of diverse technical methods, navigate to the Learn Strategies Section.
