How to read a forex signal (and what to do when price has already moved)

A forex signal is a trade plan written in one line. Read it correctly and it tells you everything you need: what to trade, which way, where you're wrong and where you take profit. Read it carelessly and the same signal can lose you money even when it works.

Here's the format we use, and how to act on it.

The parts of a signal

A typical ForexBob signal looks like this:

EUR/USD BUY · Entry 1.0840 · SL 1.0815 · TP1 1.0865 · TP2 1.0890 · TP3 1.0920

• Pair and direction: buy EUR/USD, so you profit if the euro rises against the dollar.
• Entry: the price the trade was planned from. It's either a market entry (take it now) or a pending order (a buy limit or buy stop at that price). The signal will say which.
• SL (stop loss): 1.0815, which is 25 pips below the entry. If price gets there, the idea was wrong and the trade closes.
• TP1, TP2, TP3 (take-profit targets): 25, 50 and 80 pips above the entry. Each one is a place to take some profit off.

Step 1: size the trade for your account

The signal doesn't tell you how many lots to trade, because that depends on your balance and how much you want to risk. The stop distance is what matters. With a 25-pip stop and $50 at risk (1% of a $5,000 account), the size works out to 0.20 lots on EUR/USD. Our article on how much to risk per trade shows the formula, and the position size calculator does it for you.

Never pick the lot size first and accept whatever risk comes with it. That's how one bad trade wipes out a month.

Step 2: split the position across the targets

Three targets let you take profit in stages. A common split is a third at each target. Rounding the 0.20 lots down to 0.18 so it divides evenly, that's 0.06 lots closed at TP1, 0.06 at TP2 and 0.06 at TP3. Round down, not up, so the total risk stays within your limit.

Many platforms can't attach three take-profits to one order, so the simplest method is to open three separate orders of 0.06 lots, each with the same stop and its own target. The calculator below shows what you'd make at each target and the reward-to-risk of the whole plan.

Step 3: manage the trade

When TP1 is hit, we usually post an update. A common instruction is to move the stop on the remaining positions to the entry price (breakeven). From that point, the rest of the trade can't turn into a loss, apart from spread and slippage.

Follow the updates, but don't invent your own management on the fly. Closing early because you're nervous and moving the stop further away because you're hopeful both break the plan the signal was built on.

What if price has already moved?

Signals are time-sensitive. If you see one late and price has moved towards TP1, your entry is worse, your stop is effectively wider and your reward is smaller. Our rule of thumb:

• If price has moved less than a quarter of the way from entry to TP1, you can usually still take it, with your size calculated from your actual entry to the stop.
• If it has moved more than a quarter of the way, either place a limit order at the original entry or skip the trade.
• If TP1 has already been hit, skip it. The trade you'd be taking is no longer the trade that was planned.

Missing a trade costs you nothing. Chasing one changes the maths against you.

Spread and sell signals

Charts usually show the bid price, but buy orders fill at the ask, and sell positions close at the ask too. On a sell signal, your stop loss triggers when the ask reaches it, which can happen before the chart shows the price touching your level, especially when spreads widen. If your broker's spreads are wide, allow for that, or trade a little smaller.

Time zones and timing

We post signal times in GMT. Check what that is where you live, and remember that daylight saving changes it twice a year in many countries. Be careful around the daily rollover, about 22:00 GMT, when spreads widen.

A checklist before you click

1. Do I understand the direction, entry type, stop and targets?
2. Have I sized the position from my own balance and risk?
3. Is price still close enough to the planned entry?
4. Is a big news release due in the next half hour?
5. Am I following the plan, or adding my own changes?

See the format live in our free Telegram channel, and try the numbers yourself with the calculator below.

Risk note: trading forex carries a high level of risk and may not be suitable for everyone. This article is for education only and is not financial advice.