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How to Use Trading Signals? (Insights)

Last Updated on 10 February, 2024 by Trading System

So you have been struggling to make returns from trading signals. Well, many other traders are experiencing the same thing too. But is the issue with the trading signal or with your ability to make the right decisions at the right time? We mean, could it be that you don’t know how to make use of trading signals?

While a trading signal tells you what to do, you are the one to implement it yourself, unless it is automated copy trading. Manually executing a trading signal requires some skills. Like every other trader, you need to have a trading mindset.

It is not just about receiving signals from the signal provider and placing the trades after trades. But even placing trades alone requires good trading psychology. As a trader, you have to know what trade limits to implement, how to manage your trades after entry, and how to manage your account growth.

In this post, we will discuss the following:

  • What a trading signal is
  • Why use a trading signal?
  • How to set up for trading
  • What to look out for in choosing a trading signal
  • The components of a trading signal
  • How to make use of a trading signal
  • Tips for effectively executing your trading signals


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What is a trading signal?

A trading signal is a notification of a trade setup sent out by an experienced trader who is also called the signal provider. The signal can be automatically executed, in which case it is called copy trading, or manually executed by the receiving trader. Here, we will focus on manually executed signals.

Manually executed signals are sent by the signal provider via SMS, email, Skype, Telegram, or WhatsApp, and the receiving trader has to execute the signals by himself. The signal normally contains the financial instrument to buy, the entry price, the stop loss price, and the profit target price.

There may also be some advice for trade management, such as when to move the stop loss to breakeven and when to close a part of your trade. Some signals may specify the set and forget strategy — you set the stop loss and profit target orders and leave the trade until either of them is hit, closing your trade with either the expected profit or the planned small loss.

It is important to note that some signal providers also attach charts and explanations of their analysis in the signal package alongside the main trading information. This enables you to understand the reason behind the trade setup, which may also help you to trust the signals, as well as enhance your trading knowledge.

But receiving a trading signal is not enough; you need to know how to set up for trading and the best ways to use the trading signal to get good results. But first, let’s take a look at why you need a trading signal and how to choose the right trading signal for you.


Setting up for trading

Now that you know how to choose a trading signal and what to expect, you need to consider how you set up to trade. When you prepare well for trading, you increase your chances of trading properly and making a consistent profit. This is also true when using a trading signal to trade. So, how do you set up your trading? Well, these are things to consider:

Your trading desk: Although you can trade with your phone, it will make sense if you can set up a trading desk where you have your PC, monitor, and other trading tools. This will give you a sort of an organized approach and make you take your trading as a business.

Alert system: There are different ways your signal provider can deliver the trading signals to you. It could be via SMS, Telegram, email, or WhatsApp. You can also log in to their website to access the signals. Whichever delivery method it is, make sure you set up the alert system of that delivery method. If it is email, make you set your email alert notification on, and if it is Telegram, WhatsApp, or SMS, set up the relevant alert notification. You get alerted once the trading signal is delivered so that you can place your trade immediately. This is particularly important for intraday trading where the time of entry is of the essence.

Your daily trading routine: You should have a daily routine for your trading, especially if you receive swing trading signals. Your signals may be delivered at a specific time of the day. For example, the Robust Trader Swing Trading Signal is delivered every morning before the New York market opens. So, your routine could be that once the signal is delivered, you review them and choose the ones you want to trade and when the market opens, you hop to your broker’s platform and place your orders, while at night you review your open positions to know how they are performing.

Why use a trading signal?

It does not matter whether you are an experienced trader or an amateur, trading signals can improve your trading in many ways. Trading signals take away the hard part of trading, which is the analysis of the markets to find tradable opportunities. As you know, technical analysis can be very tasking — from selecting the instruments with trade potentials to analyzing the charts to find tradable setups, not everyone has what it takes to do it rightly.

As a beginner trader who doesn’t know how to perform technical and fundamental analysis of the various financial assets, subscribing to a trading signal service enables you to trade the financial markets profitable while you learn how the market works if you want. Trading signals makes it possible for you to participate and profit from the financial markets without knowing how to analyze the market and doing the hard work yourself. You simply get the signals, place your trades, and make profits if they are winners.

Also, if the trading signal comes with charts and explanations of the trade setups, you will get to learn how the signal provider analyzes the markets and his thought processes. This can help you in understanding the factors that move the market and how to take advantage of them.

Even if you are an experienced trader, you can still benefit from subscribing to a trading signal. While you know how to analyze the market and have your own trading strategy, it is good to diversify your funds because one strategy doesn’t perform so well in all market conditions. Subscribing to a trading strategy helps you to diversify your approach to the market.


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What to look out for in choosing a trading signal

So, what do you look out for when you want to subscribe to a trading signal service? Knowing the parameters to use to assess the suitability of a trading signal service is very important in using a trading signal. Let’s take a look at some of those parameters, which include the following:

  • The market you want to trade: Obviously, you need to ensure that the trading signal provider you subscribe to caters to the market you intend to trade. If you want to trade stocks, subscribe to a signal provider that focuses on stocks, such as the Robust Trader Swing Trading Signal.
  • Your preferred trading style: It is important you consider your trading style before choosing a trading signal. Your trading style may be swing trading, day trading, or position trading. Whichever one it is, choose a trading signal that corresponds to that style. It wouldn’t make sense to be receiving day trading signals when you only want to swing-trade part time. As a newbie, you may not know your preferred trading style, but it is better to start with swing trading.
  • Your time zone: If you intend to go with intraday trading, you must make sure that you are in the same time zone as your signal provider so that you don’t get trading signals when you are sleeping at night — in intraday trading, you need to act on the signals immediately; if not, you miss the right entry level or miss the trade entirely.
  • The track record of the signal provider: Of course, you have to consider the track record of the signal provider you want to subscribe to. By track record, we mean how long they have been delivering signals, their profitability, their consistency, and other relevant parameters for evaluating trading success.
  • The signal package: You should also consider what is included in the signal package. Does it include charts and the explanations of their analysis? This is necessary if you wish to learn from the analysis and explanations.
  • The cost of the trading signal: The subscription cost matters. While the so-called free signals may not be good for you because they are designed to make you trade more frequently as the signal provider earn a commission from the spreads, you shouldn’t overpay for trading signals.
  • Your trading capital: Your trading capital also matters, especially in relation to the cost of the trading signal. If you have a $1,000 capital, subscribing to a trading signal that costs $40 per month means that you must make up to 48% return per annum to breakeven.

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The components of a trading signal

Usually, there are five components of a trading signal, and they include the following:

  • The financial instrument to trade: The first thing you will see in a signal notification is the financial instrument you are to trade. If the signal is focused on forex, it will tell you the currency pair to trade. For a stock trading signal, it will specify the stocks you are to trade.
  • The direction to trade: The signal will tell you whether you are to buy or sell the instrument in question.
  • The entry price: In any trading signal, the entry price will be stated, or it will tell you whether to enter a trade at the open or close of a particular price bar.
  • The stop loss price: The signal will also specify where you can place your stop loss order.
  • The profit target price: You will also see the price level to set your profit target or how much you should aim for in terms of profit.

Some signal providers may include other trade management details, such as the price at which to move your stop loss to breakeven and when to close a part (say 50%) of your trade. They may also attach a price and volume chart, showing their analysis.


Making use of a trading signal

So, how do you make good use of a trading signal? Well, the answer is not straightforward. There are a lot of factors to consider. Let’s take a look at them one by one.

Money management and account risk

To successfully make good use of a trading signal, you must have a good money management plan, which is what determines how much of your trading account you are willing to risk in a trade. The usual advice is to not risk more than 1-3% of your trading capital in one trade.

What this means is that if you have a $5,000 account, you should only risk between $50 and $150 in a trade. This translates into the number of shares you can trade, depending on the price of the stock and the size of your stop loss. For example, if you are to trade a stock that trades at $500 shares per trade and you plan to use a 10% stop loss, you can only trade 1-3 shares. But if the stock is trading at $50 per share, you can trade 10-30 shares.

Your money management plan positions you for success, and here’s why. Trading is a game of probability. Your trading signal may be a profitable one with more winners than losers, but there is no way of knowing which trades would be the winners. You can have a series of wins and losses. Risking a small percentage of your account per trade helps you to still remain in the game when you have a streak of losses. If you risk 1% per trade and you have a streak of 10 losses, you would still have more than 90% of your account to trade with, but if you were risking 10% per trade, your account would be almost empty after 10 straight losses.

Executing trades

Okay, you have determined your account risk and know how to calculate your trading volume for each trade. But how do you trade the recommendations in the signal package? Do you trade them as they are or alter them a bit to suit you, especially when it comes to the stop loss and profit targets?

While some people would say you can alter the trade recommendations as you want, we advise against that for many obvious reasons. One, altering the stop loss or profit target might affect the edge the signal offers, so you won’t have the expected result. The signal provider may be making profits from the same signal, while you are losing. For instance, if you reduce the stop loss, you might get knocked out before the trade moves in the expected direction, and if you extend the profit target, the price may not get to your new profit level before reversing, turning what would have been a profitable trade to a losing one.

Another reason is that by altering the stop loss or profit target, you will affect the reward/risk ratio, which, in turn, will affect the profit factor of the trading signal. A quality trading signal may end up performing poorly because of poor execution.

Trade management

Next, how do you manage your trades after placing them? Do you use the set and forget strategy or the active management strategy? We believe that the best trade management strategy is the one recommended by the signal provider. Some signal providers tell you what to do as the trade progresses. It may be in the initial signal package, or it may come as a follow up to the signal. They may tell you when to move your stop loss to breakeven and when you can close a portion (say 50%) of your trade.

But if the signal provider does not recommend how you manage the trade, we advise that you use the set and forget strategy since the signal specifies the stop loss price and the profit target. You simply place the trades, set your stop loss and profit target, and move on. The price will either hit the stop loss, making the trade a loser, or the profit target, making the trade a winner. Set and forget strategy is less stressful and makes it easier to analyze the performance of a trading signal.

Reviewing your trades

Despite what the signal provider says about the signal and the statistics they provide regarding its performance, you need to review your trades from time to time to know how well the trading signal is performing. But how often do you review your trades?

Well, trading is a game of probability, with no way of knowing the outcome of each trade before pacing it, and there can be streaks of winners and losers. Reviewing your trades after a few trades would give a biased result of the signal performance — if you are in a winning streak, you may think that the signal is a trading Holy Grail, and if you are in a losing streak, you will prematurely think that the signal is a flop.

We advise that you trade in sample sizes and review your trades after reaching a sample size. Your sample size should be big enough to capture the normal streaks of wins and losses. A sample size of 50 or 100 trades is good enough. If you choose a sample size of 50, after every 50 trades, you review the performance of the trading signal, but if you choose 100, you do that after every 100 trades.


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Planning your account growth

The final thing to consider is what to do with your profit at the end of the month. Do you withdraw your profit every month and trade with the same capital, or do you want to grow your account size over time by retaining your profits?

If the latter is the case, how much of your monthly profit do you intend to retain — some of it or all of it? You alone can answer these questions.

Tips for effectively executing your trading signals

Here are some tips that can help to execute your trading signals more effectively for better results:

  • Trust your signal: To be able to effectively execute the signals you receive, you must trust the quality of the signal, which is why you should only subscribe to signals with a proven track record of success.
  • Execute as recommended: In order not to mess with the signals you receive and diminish the probability of success, you need to execute them as recommended with the stop loss and profit targets.
  • Start small: Start by trading the smallest allowable trading volume (lot size or the number of shares) until you get to fully trust the signals you receive. This way, you are risking a small amount so that even if your signal isn’t good enough, you won’t lose much.
  • Trade in sample sizes: Trade in samples of 50 and review your performance after the 50th From the performance, you will know if you can increase to the optimal trade size for your account size.
  • Increase as your confidence rises: When you are fully satisfied with the signal performance, you can start trading the normal volume for your account size. But even at that, don’t risk more than 1-3% of your trading account per trade. Past performance is not indicative of future performance, so you shouldn’t risk too much per trade at any time.

Final word

To improve your trading result, you need to know how to effectively make good use of trading signals. Trade exactly as recommended by the signal provider, but start with the smallest allowable trading volume. Then increase your trade size as your confidence in the trading signal improves. However, don’t risk more than 1-3% of your trading capital in each trade no matter what.

Here you can find our archive with all our swing trading articles.


How are Manually Executed Signals Different from Copy Trading?

Manually executed signals require the trader to execute the trades independently based on the information provided. In contrast, copy trading involves automatically replicating the trades of a signal provider. Here, the focus is on the manual execution of signals.

What Components are Included in a Trading Signal?

A trading signal usually consists of the financial instrument to trade, the direction (buy/sell), entry price, stop loss price, and profit target price. Some signal providers may include additional trade management details and attach charts and explanations to enhance understanding.

How Can I Set Up for Trading and Maximize the Effectiveness of Signals?

Setting up for trading involves creating a dedicated trading desk, establishing an effective alert system for signal delivery, and developing a daily trading routine. This preparation increases the chances of trading properly and making consistent profits, especially in intraday trading.

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