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How to Generate Forex Signals With Trading Systems

The only method of trading currencies is through Forex signals, It is is best to learn how to generate these for yourself, this way you do not have to rely on others to generate them for you.

Generating Forex signals is not easy and requires you to have a lot of technical analysis knowledge and experience, but the earlier you start practicing how to generate these trading signals for yourself the better it is for you.


A good method of how to practice generating Forex trading signals with Forex trading systems is to open a free practice Forex demo account and test your trading signals on this practice account risk free without risking your money, then once you have tested your trading strategies and they are profitable you can the use them on a live Forex account.


The method of how to to practice generating these trading signals as well as how to back test them on the demo account using the MetaTrader 4 platform is discussed below:


So, How Can a Trader Generate Forex Trade Signals?

The best method of generating currency trading signals is through Forex trading systems, You can Learn how to come up with Forex systems from the lesson Building FX Systems on the right navigation menu under the topics Key Concepts.


A Forex system is a combination of one or two or more technical indicators with written rules of how these indicators will generate these signals.

Take an example of the simplest system or trading strategy known as moving average crossover method. A buy or sell is generated when there is a crossover of the two moving averages; either a buy for an upward crossover or a sell for downward trend.

Example of Moving Average Crossover Method Forex Strategy

Example of Generating  Currency Trading Signals Using Moving Average Crossover Method


The example below shows a Forex system using the above moving average strategy combined with the RSI and MACD indicators to generate buy and sell trades.

MACD Indicator Example of Forex Signal
Exampleof Online Trading Systems

When it comes to generating buy and sell signals, investors should use simple systems to generate these.


Generating Forex Trading Signals

Generating a Trading Signal - Buy and Sell Forex Signal



Trading Systems

An example of a simple Forex system that works, and has a high win percent ratio is one that is a combination of:

  • Moving average crossover strategy
  • RSI
  • MACD



The written rules are:

Forex Trading System Rules For Generating Signals

Generating Trading Signals Strategy



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 center-line


Generating Buy Signal and Sell Signal

Generating Buy and Sell Trades


Exit Signal

Exit is generated when MA, RSI and MACD give a signal in the opposite direction.


The time-frame to use is 1 hour time-frame or 15 minutes chart time-frame depending on what type of trader you are.


For a beginner the above written rules will give very good buy and sell signals, the only thing that a one needs to do is to have the discipline to follow the written rules the exact way they are, and wait for a buy or sell transaction to be indicated by your strategy and trade after the signals have been generated, not before they are generated.



Back Testing

Generating Trading Signals with a system is one of the easiest method to trade currency, 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 demo practice account so as to gradually increase the level of accuracy of this Forex trading signals strategy


The best way to back test a strategy is by following these two steps:

  1. Paper Trade
  2. Demo Trade


Paper Trading- This method involves placing your system on the currency 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 strategy would have given buy, sell and exit signals. Write down these points and the profit per transaction on a piece of paper and then calculate the total profit after you have recorded a good number of trades such as 50 paper transactions and determine if your method is overall profitable, the win ratio, the loss ratio and the risk:reward.


This is an ancient method that was used by traditional investors 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 charts manually (Imagine plotting the charts on your currency 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 and plot the charts on paper, anyway for our paper method, just a sample data of 50 transactions is all we need.


A good tool to use to back test your FX system is known as the MT4 Step by Step Tool. Found on the charts toolbar of MT4 platform, If you want to find the charts toolbar on the MT4 it is at the top of the MT4 platform. If it is not: Click View (next to file, top left corner of MT4)>> Toolbar >> Charts. Then click the Customize button >> Select Step by Step >> Click Insert >> Close.

MT4 Platform Chart Tool Bars

Chart Tool Bars - Step by Step Button for Back Testing Forex Signals

Chart Tool Bars - Step by Step Button for Back Testing


Once you get this tool you can move your chart backwards, and use this tool to move the charts step by step while at the same time testing when your system would have generated either a buy or sell transaction, and where you would have exited the transaction, then write down the amount of profit/loss per transaction and out of a sample number of transactions you would then calculate the overall profits/losses generated.


If your strategy is profitable on the paper then, its time to demo trade and testing if the it is profitable on the real market as it is on paper method. This is the process of testing or back testing.

Maintain a Forex Journal to keep track of profitable trades, and 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.


Tweak your currency trading system until you get a good risk:reward ratio, with the 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 money management even 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 Reward Ratio Chart of Money Management Forex System

Risk To Reward Ratio Chart of Money Management Strategy


Read Money Management Strategies Tutorial


A manual trading system is still the best way to generate signals compared to automated ones, a manual strategy is a better method and is also much simpler to implement.


However, other traders prefer automated Forex trading systems and for those then they can check the information on this page MQL5 Expert Advisors and automated Forex trading systems.


You can also view our extensive list of currency trading strategies topics that provides you with various methods of buy and sell technical analysis using a number of diverse technical methods, navigate to the Strategies Section.