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What are Crypto Trading Signals? A detailed guide

Michiel Mulders
August 28, 2020
crypto trading signals, crypto traders, crypto trading

Crypto trading signals allow us to trade as efficiently as possible by eliminating random guesses. Keep in mind that while the goal of trading signals is to assist us with making safer investment decisions, they are in no way a get-rich-quick scheme. Always do your own research.

Furthermore, the benefit of trading signals lies in the fact that they assist us in making smart decisions to end up with a net profit from trading crypto. They offer a way to make educated decisions on the crypto market without the need to have a large knowledge base about trading. It also saves us time because it eliminates the need to look at the markets 24/7.

This article discusses the anatomy of trading signals, the different types of trading signals, how you can use trading signals to your advantage, and touches tips for finding a reliable signal provider. Interested? Let’s dive into the article!

Understanding the Anatomy of Trading Signals

Crypto signals represent trading advice a trader receives from a signal provider. These signals contain different types of suggestions such as the type of crypto to buy/sell, the sell-targets, and the price to set the stop-loss. A sell-target is a projection of the price at which the cryptocurrency should be sold off. Further, a stop-loss is defined by investopedia.com as:

“...an order placed with a broker to buy or sell [an asset] when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position…” 

These signals provide a better option for the trader instead of having to make random decisions. And since the signals often come with a stop-loss and take profit, they provide a relatively safe entrance into crypto trading. In other words, they allow you to set smart borders for your trade to work within. 

When your trade doesn’t turn out to be correct, you can limit your losses. When a trade turns out to be profitable, a take profit exactly defines for you when to sell an asset. For many starting traders, it’s hard to determine when to sell a crypto asset. The idea of having those limits defined for you helps you better control your emotions when trading.

The crypto signals can come from several different places. You can choose for trading signals provided by experienced traders, or you can choose for the crypto trading signals that are based on technical analysis, the situations of the market, crypto news, or rumors from insiders. These signals are often provided through algorithms and you should check if they have a good track record.

After a while, you may find it beneficial to do your own analysis instead or following crypto signals from other providers. It’s important to keep in mind that even the most experienced traders still often make mistakes.

Types of Crypto Trading Signals

Crypto trading signals are often divided into two large groups, which both have their own advantages and disadvantages:

  1. Signals created by professional traders.
  2. Signals generated by trading algorithms and bots.

Bots offer a great option because they can process large amounts of data in a small time frame. That way they are more effective at finding opportunities more quickly than humans.

Professional traders have the advantage of being good at interpreting and analyzing news and emotions; and including this information in the mix with signals generated by bots.

Telegram is a platform that is often used for sending crypto trading signals. That’s because the platform makes it easy to write custom bots. Furthermore, professional traders can then discuss the suggested trades by bots.

How Safe are Crypto Trading Signals?

A lot of trading signals include stop-loss and sell-targets to reduce the risk of losing too much money. For a beginner who doesn’t really have a clue on the actual worth or strength of a cryptocurrency, following these signals is a smart strategy to reduce risk. 

One of the problems of using crypto trading signals effectively is finding good signal providers. Another problem may arise when too many traders follow the same signals. It becomes much harder to make good profits since they will become smaller as many people are trading the same signals.

5 Tips for Finding a Good Signal Provider

There are certain things to keep in mind when you are looking for a good signal provider. Since the amount of profit you can make is determined by the quality of the signals as well as the popularity of the signal provider.

#1. Stick to a Single Exchange

In order to keep you from having to switch between different exchanges, it’s a good idea to choose a signal provider who focuses on one particular exchange.

#2. Ability to Monitor or Follow Signals

When you decide to follow a signal, the provider should allow you to monitor the signal to see whether the idea is performing or not. That means when a buy-in price has been achieved or a profit target has been reached you will be notified by the signal provider.

#3. Backed by Technical Analysis

A signal should always be backed by technical analysis or some news to provide the signal. When you’re interested in why the provider deems it a good moment to buy/sell, it’s a good idea to join a provider who offers technical analysis. That way you’ll be able to see why the signal was sent based on patterns that may have happened before. 

An example of one of those patterns can be an indicator, such as Fibonacci Retracement Levels or a Bearish/Bullish flag. These are algorithms used to make a guess on which movement might happen on the market.

#4. Possibility for Trade Automation

Availability of a bot - It’s useful to have a bot that works on a particular exchange to execute trades automatically for you. This way, you don’t have to monitor Telegram groups or other signal providers to then manually set up the buy and sell limits on the crypto exchange.

Another great advantage of using a bot is the speed of execution it offers. When there’s a signal you want to follow, you can use a bot to create an automated buy/sell order quickly.

#5. Pick Signals Carefully

A popular platform for where a lot of signal providers reside is Telegram. It offers integration for automated trading bots, but one of its downsides is that it can get hard to keep track of signals. So make sure you don’t get overwhelmed by the amount of information you receive.

Therefore, pick one or two signals per day and only focus on those signals. A Telegram bot often sends you many signals per day, sometimes for many exotic coins. I recommend starting easy by only focusing on a handful of coins, such as Bitcoin, Ethereum, ChainLink, or Ripple. It’s easier to trade patterns on coins with a high volume than exotic coins that do not reside within the top 100 on Coinmarketcap.

Why Use Crypto Trading Signals?

In order to make money from crypto trading, you need a firm knowledge base to develop an effective strategy. Crypto trading signals offer a way for experienced traders to share their know-how with those who lack their experience. 

Without the know-how, you could still make a profit by using common strategies, such as alternating short-term trading and long-term investments. But even these strategies are not optimal when you are clueless about when to buy or sell a cryptocurrency. 

These signals offer a cue for you to make a decision based on a thorough analysis of the current crypto market. You still get to decide whether you follow the suggestion or decide to follow your own instinct, but in any case, it will beat having to make uneducated random guesses.

Crypto Signals: Would You Try Them?

Crypto trading signals offer a great way to roll into crypto trading when you don’t have extensive knowledge of how the market works. It’s important to choose a provider with a healthy track record to make sure the signals you receive are trustworthy. It will make sure you can start trading in a relatively safe manner. 

After a while, you may find it more beneficial to trust your own instincts about the market and decide to perform your own analyses. It’s important to keep in mind that crypto trading signals do not offer a golden ticket to heaven and that it’s more important to choose a provider who can offer slow and steady growth instead of a provider whose signals make you jump from high profits to almost losing your money.

Found a good trade and want to access money quickly to maximize your profits? Take a look at YouHodler’s instant fiat or crypto loans backed by cryptocurrencies.

About the Author
Contributor

Michiel Mulders is a blockchain developer with a passion for the crypto space. His interests include blockchain, entrepreneurship, marketing, and carefully crafted beers. Cheers!

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