Signal-based binary option trading has grown in popularity by leaps and bounds lately. On one hand, this phenomenon can be explained by the massive influx of novice traders onto the binary options scene. Binary options are easy to understand and apparently very simple - attributes which are very attractive for the masses.
In practice though, squeezing consistent long-term profits out of this activity requires skills, dedication a massive investment of time and a strategy. The bottom line is that few people can afford to put all those resources into something they may have taken to as a hobby...
This is where signal providers come in and through their services, they make the binary option equation feasible again for everyone.
Signal providers take over and do the "dirty" work in traders' stead. The signals they deliver are their "products" and if acted upon properly, this product does indeed work. There are traders out there who do all their work based on such trading signals and they're wildly successful.
The other attractive feature of trading signals is the fact that while all the boring work is done for them, traders still retain a great deal of control over the trading process, through the way they actually apply these signals. At the end of the day, they can be pleased with themselves if things go well, and obviously: blame the signal provider if they don't.
How are trading signals generated?
The vast majority of trading signals are based on technical analysis, more precisely on the combination of various technical indicators. On top of such systems, further filters can then be applied, based on similar combinations of indicators.
In theory, this approach can be twisted and turned into an infinite number of signal generators. That however does not solve a problem that all automatic signal generators have, namely that they're unable to account for the fundamental factors.
While from a human perspective, fundamental analysis is easier than technical analysis - after all, it's basically about trading the news - from a mathematical perspective, technical analysis is infinitely easier to automate. Save for some extreme AI solutions, the fundamentals of an actual binary trader cannot be automated at all.
This is why signal generators will fail over the long-run. Shrewd traders have a sort of half-baked solution for this problem. They keep an eye on the market, and whenever there's increased volatility on account of the fundamentals, they simply turn their signal generators off, or do not act on the signals.
There are signal services out there though that have developed real solutions for this problem, by simply adding a human element to the mix. Expert traders pore over the trading signals and add their fundamentals-based tweaks, before an actual trading signal is released. Such signals are also known as binary expert alerts, and they come from actual humans.
Types of trading signals
There are two types of trading signals available on the market: simple and complex signals. The simple trading signals tell the trader which underlying asset to trade, in which direction to place the trade and they provide a strike-price, as well as an expiry.
In essence, such signals deliver all the data on which the trader can act. All that's left to do, is to actually pull the trigger. Of course, timing can be an issue with such signals too, but generally speaking, such signals are no-brainers.
Complex trading signals on the other hand, offer a complete prediction regarding the position of the market at a given point in the future. Such a signal may tell you that the EUR/USD will be trading at 1.05 tomorrow at 5 PM. How you decide to trade based on this information, is entirely up to you.
There are certain broker-features out there which make the trading of such complex signals easy and profitable, like NADEX's Nadex 30 Strike Prices. Other than that, such signals can be traded through any other platform too, the way one would trade any other signal or personal hunch.
So how do you find a good signal provider?
It's all really a trial-and-error process, but obviously, there are a few shortcuts one can take in this respect. First of all, taking a peek at some community forums and comment sections is always a good idea.
The trading community is unforgiving with scammers, and there are plenty of scammers in this field indeed. By getting a feel regarding the general community vibe about a service, you will at least avoid scammers.
Other than that, you will just have to give it all a go and see how it works out. If possible, go for a service where a human component is also part of the signal-generation chain. Always remember that you have to apply the received trading signals properly.
It is entirely possible to end up a loser with all the right trading signals.