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Intermediate

19 days ago

What Are Trade Signals and How to Use Them in Crypto Trading


About

Trade signals are recommendations based on analysis conducted by professional analysts or programmed strategy. In fact, adopting the strategies of others can save you a lot of time and energy. However, there is no magic formula that will make you a fortune. 

In this guide, you'll learn everything you need to know to start using trade signals and how to avoid the most common pitfalls.


Contents

What are trade signals?

A crypto signal is a recommendation based on analysis. It helps traders make decisions related to a trading portfolio to maximize profit. Signals can help you with the following:

  1. Which securities to trade 
  2. Whether to buy or sell a crypto asset
  3. When to enter or exit the market

Signals can even predict possible profit if you follow the instructions precisely. 

Trade signals are the result of trading chart analysis

From a professional point of view, a signal is an analysis of patterns or technical indicators. Candlesticks are one of the ways to reflect information about the price of an asset (the bars you see on a chart). Here is what a candlestick might look like.

Upper shadow, real body, and lower shadow of a candlestick
Parts of a candlestick

Several candle combinations form patterns:

inverted hammer crypto signal
Inverted hammer pattern

Popular patterns have names. In the picture above is a so-called inverted hammer. It’s a strong pattern that indicates a shift from a downtrend to an uptrend (forces the market prices down). The inverted hammer indicates that buyers will take control of the market shortly.

Another example is bearish engulfing, pictured below:

bearish engulfing crypto signal
Bearish engulfing pattern

An analyst will conclude that the pattern signifies a sluggishness in price movement. What's the bottom line? A market crash is on the horizon. The lower the red candle descends, the stronger the trend is expected to be.

Even though predictions do not hold true 100% of the time, experts use technical analysis to predict the market’s behavior over the long run. The first signals emerged as a consequence of accurate calculations and expert hypotheses.

what are trade signals on a trade exchange

A good analysis yields an accurate trade signal that can bring you profit, and a poor analysis is the opposite; that’s why it’s critical to understand where a trade signal originates from.

Types of trade signals

types of crypto trade signals

There are three types of trade signals based on who created the signal, what targeted action it provides, and the cost of the signal service:

1. Paid or free?

Some signals are available on the web for free, while others may cost hundreds or even thousands per month.

Free Crypto Trading Signals cost you nothing. They are available anywhere on the web. The most common places are Telegram, Discord, and Reddit. However, you should pick them carefully to avoid frauds and low-quality free signals.

Pros
Cons

No need to spend money on a subscription

Not accurate

Easy to access

Possible fraud

Paid Crypto Trading Signals require a subscription fee, which may be pricey. On the other hand, they are stable and reliable. Major crypto exchanges offer paid signals along with medium-size companies.

Pros
Cons

Low risk for your portfolio

Can be pricey

High stability overall

May have platform limitations (e.g., you can’t use Binance signals outside of the Binance exchange)

Some trading platforms’ signals are more credible because they originate from a reputable, trusted source. For instance, 3commas provides a marketplace of diverse signals, both free and paid.

2. Human or machine?

Who has done the research: trading robots, artificial intelligence, or your analyst neighbor?

Manual Crypto Trading Signals are a result of human analysis. An individual or group of analysts look through data to build a sustainable market prediction model.

Pros
Cons

Human experience, practice

Random mistakes

Abstract, out-of-the-box thinking

Relatively low speed

Automated Crypto Trading Signals are the outcome of machine analysis. Algorithms automatically perform actions based on a set of rules. For example, if a security’s growth rate exceeds a certain value, the algorithm identifies it as a rising security and purchases it.

Trading robots surpass humans in terms of calculating and operational speed capabilities, but someone still trains, controls, and sets up even the best machines. 

Pros
Cons

Fast operations

Strict YES-NO logic

Work as adjusted, no random mistakes

Ignore non-configured parameters

3. Entry or Exit point?

Entry Crypto Trading Signals consider the best moment to buy securities by detecting market lows. These signals suggest an entry point. The main feature of entry signals is reliability: they are safer than exit signals. On the other hand, entry signals do not take losses into account.

Pros
Cons

More reliable than exit signals

Do not take losses into account

Exit Crypto Trading Signals are responsible for loss reduction. They show the best time to grab your profit and run. Exit signals may take the uncertainty from knowing when to sell, however, they yield extra risks compared to the safer entry signals.

Pros
Cons

Increase profit, reduce losses

Less reliable than entry signals

Although some signals are entry only, a selection of them utilize a combination of both. On top of that, classification of signals is very tentative. For example, professional traders also mention the behavior signal classification:

  • Momentum signals leverage buying strength. These signals are useful for short-term traders: buy and get on board right away.
  • Buying Dips signals form an optimal risk/reward ratio. Perfect for range-bound strategies.
  • Trend signals detect and utilize long-term trends by following the same direction. Steady but slow; growth lovers use trend signals.
  • Breakout signals encourage people to buy highs and sell them even higher. These signals fit markets emerging from a period of being range-bound.

With that in mind, let’s dive in and find the best algorithms to boost your profit.

How to find the best signals: A 5-step brief

Picking top-notch signals affects your profit directly: the quality of signals determines whether you’ll make money or not. Pay attention to these five aspects when opting for a signal:

  1. Free trials
  2. Record of previous trades
  3. Time zones      
  4. Your needs
  5. Extra services

1. Free trials

A fully-fledged test drive plays a vital role in establishing your arsenal of tools. Many signal providers may offer a “free” version of their signals that provides a limited number of new trade signals per day so you can assess the quality before purchasing a subscription. No up-front payments, yet 100% functionality is a sign of a potentially successful signal. Make sure the incoming trading information is reliable first.

2. Record of previous trades

Although signals are ready-to-use solutions, you still should analyze the situation. Trading history can tell a lot about how a particular signal performs now and what the overall quality is. Pay attention to whether or not third parties participate in the verification process (this is rather about small companies than sustainable exchanges). If not... Well, call it a red flag.

3. Time zones matter

For manual traders, signals are valid for a short period. If you’re sleeping when signals come in, what’s the point? Ensure that the signal provider is in the same time zone (or at least comfortable for you).

4. Your trading goals

Your trading style always plays a crucial role. Some signals couple well with aggressive short-term trading strategies, while others match a long-term, steady growth vision. Experienced traders prefer signal combinations. Think about your master plan, what you want to achieve, and how. Focusing solely on money won’t help.

5. Extra services 

Thanks to its growth over the years, the crypto market has a lot of signals available. Some of them offer extra services at a similar cost. Always check new companies, even if you’re satisfied with the current signal quality. Decent and best are not the same, are they?

Now you can pick a solid option yourself: just pay attention to all five aspects. Nevertheless, you may be curious about particular examples.

Examples of crypto trade signals

Signal provider
Subscription price
Weekly frequency
Overall score

Verified Crypto Traders

  • From $66 monthly
  • $1200 for 12 months

Up to 5 signals

A

Fat Pig

  • From 0.5 ETH monthly
  • 0.75 ETH for 6 months
  • 1.25 ETH for 12 months

1 to 3 signals

A

Universal Crypto Signals

  • From $99 monthly
  • $999 for 12 months

1 to 5 signals

A+

CQS Premium

From $10 monthly

Up to 100 signals

A

AlphaTradeZone

  • From 0.007 BTC monthly
  • 0.02 BTC for 3 months
  • 0.1 BTC lifetime subscription

5 to 8 signals

A

To find more signals, check out crypto trading-related forums, channels, and groups. A community can help in establishing a perfect signal for your goals. Always pay attention to both the best and the worst predictions: finding the best average overall value is the key to successful signal trading.

Tips to get the most out of trade signals

Even though trade signals may lessen the crypto market’s volatility, they are not 100% risk-free. These additional tips can boost your chances:

  1. Stick to stop-loss trades to minimize losses
  2. Go for take profit strategies to boost profits
  3. Consider signals of your own

Now let’s discuss each tip in detail.

Stop-Loss Trades & Signals 

Stop-loss is a market tool to limit your losses. You set up a stop price; once the market reaches that price, your order launches. The next step is usually a market order. 

The 3commas trading bot offers the following setups:

  • Cond. Limit Order: Will be placed on the exchange order book when the price meets stop-loss conditions.
  • Market Order: Will be executed at actual rates when the price meets stop-loss conditions

A trailing stop-loss option is also available. It activates after creating a Smart Sell. You can read more about the feature in your 3commas account.

To activate the feature, go to the Smart Trade subsection and click on the Set Stop Loss button.

3commas stop loss trade

A stop-loss market order allows you to limit your losses from an open position.

Take Profit Deals

Take profit (TP) is a market tool to maximize profit. TP helps you to close out of an open position automatically. Set up the tool to exit a trade as soon as the market offers an advantageous price.

For example, on 3commas you have two basic setups:

  • Limit Order: Will be placed on the exchange order book beforehand.
  • Market Order: Will be executed at actual rates when the price meets conditions.

A trailing take profit option is also available. It activates after reaching the set profit level.

To activate the feature, go to the Smart Trade sub-section and click on the Set Take Profit button.

3commas take profit trade

Create & Monetize Your Own Signal

Ever notice that many of your predictions about the crypto market come true? If so, you can create your own signals that other people will use. Negotiate with a major platform, create your own Telegram channel, or share with people via Reddit. Successful signals can bring you additional income as a commission or help you create a full-fledged business. But only go for this option if you feel confident about your crypto market prediction abilities.

FAQ

What is a trade signal?

A trade signal is an analysis-based recommendation that helps traders on which securities to trade, whether to buy or sell a crypto asset, and when to enter or exit the market.

Where can I get free trade signals?

You can get free trade signals in Telegram, Discord, and Reddit.Some crypto exchanges offer chargeless signals along with free trials.

Are free trade signals trustworthy?

Utilize free trade signals cautiously.Many of them are either blatant fraud or products of inept prediction. The bigger your trading portfolio, the less likely you should opt for free signals.

Where to find reliable trade signals?

Some trading platforms’ signals are more credible because they originate from a reputable, trusted source. For instance, 3commas provides a marketplace of diverse signals, both free and paid.