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How to Generate Forex Signals With Forex Trading Systems

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



Generating Forex trading 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 forex 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 forex trading signals on this practice account risk free without risking your money, then once you have tested your forex 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 forex 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 forex trading signals is through Forex trading systems, You can Learn how to come up with Forex systems from the lesson how to create Forex Trading Systems on the right navigation menu under the topics Forex Key Concepts.

 

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


Take an example of the simplest forex trading 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 Generating Forex Trading Signals Using Moving Average Crossover Method

Example of Generating Forex Trading Signals Using Moving Average Crossover Method

 

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

Example of Online Forex Trading Systems and Forex Trading Strategies
Example of Online Forex Trading Systems and Forex Trading Strategies


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

 

Generating a Forex Trading Signal - Buy and Sell Forex Signals

Generating a Forex Trading Signal - Buy and Sell Forex Signals

 

 

Forex Trading Systems

An example of a simple Forex system that works, is one that is a combination of:

  • Moving average crossover strategy
  • RSI
  • MACD

 

 

The written forex trading rules are:

Generating Forex Trading Signals Strategy - Forex Trading System Examples

Generating Forex Trading Signals Strategy - Forex Trading 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 center-line

 

Generating Buy and Sell Forex Trades - Example of a Forex Trading Strategy

Generating Buy and Sell Forex Trades - Example of a Forex Trading Strategy

 

Exit Signal

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

 

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

 

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

 

 

Back Testing

Generating Forex Trading Signals with a forex trading system is one of the easiest method to trade forex, it is the best way that a forex trading beginner can attempt to determine the direction of the forex 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 forex strategy is by following these two steps:

  1. Forex Paper Trade
  2. Forex Demo Trade

 

Forex Paper Trading- This method of testing a forex trading system involves placing your forex trading system on the forex charts, then take the forex chart back to a particular date, 3 months back for example, and then using this forex 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 forex 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 forex transactions and determine if your forex trading method is overall profitable, the win ratio, the loss ratio and the risk:reward.

 

This is an ancient method of testing forex systems 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 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 forex charts on paper, anyway for our paper method example, just a sample data of 50 forex trade transactions is all we need.

 

A good forex trading tool to use to back test your Forex system is known as the MT4 Step by Step Tool. Found on the MetaTrader 4 forex charts toolbar of MT4 forex platform, If you want to find the forex charts toolbar on the MT4 platform it is at the top of the MT4 forex trading 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 Forex Platform Chart Tool Bars - How To Trade Forex For Beginners

MT4 Chart Tool Bars - Step by Step Button for Back Testing Forex Trading Systems Explained

MT4 Chart Tool Bars - Step by Step Button for Back Testing Forex Trading Systems Explained

 

Once you get this MT4 forex tool you can move your forex chart backwards, and use this MT4 forex trading tool to move the forex charts step by step while at the same time testing when your forex system would have generated either a buy or sell forex trade transaction, and where you would have exited the forex trade transaction, then write down the amount of profit/loss per forex trade transaction and out of a sample number of forex transactions you would then calculate the overall profits/losses generated by the forex trading strategy.

 

If your forex trading strategy is profitable on the paper then, its time to demo forex 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 a forex trading system.

Maintain a Forex Trading Journal to keep track of profitable forex trades, and determine why these forex trades were profitable. and also keep a log of all losing forex trades, determine why these forex trades made a loss and the avoid making these same mistakes the next time you trade using your forex trading strategy.

 

Tweak your forex trading system until you get a good risk:reward ratio, with the 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 forex strategy with a win ratio of even 30% i.e less than half of your forex 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 Trading Strategies Explained

Risk To Reward Ratio Chart of Money Management Strategy - Forex Trading Strategies Explained

 

Read Money Management Strategies Tutorial

 

A manual forex trading system is still the best way to generate forex signals compared to automated forex trading systems, a manual forex 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 forex 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 Forex Strategies Section.

 

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