What are stock signals?
Stock signals are quantified triggers for action to buy or sell based on price action or technical indicators reaching predefined levels on a chart. The goal of a trading signal is to designate when there is a greater probability of one thing happening than another. The goal of trading signals is to create trading strategies that are profitable due to a high win rate or bigger wins than losses on average. Stock signals should quantify entry and exit strategies that create good risk/reward ratios on a chart.
Stock signals are triggers to enter or exit based on preset criteria with an edge.
Types of stock entry signals
- Breakouts from a range.
- Momentum signals showing a directional shift on a chart.
- Moving average crossover signals.
- Chart pattern signals.
- Candlestick signals.
- Technical indicator signals.
- Pure price action signals.
Types of stock exit signals
- Stop losses under key support.(Long positions)
- Stop losses over previous resistance levels. (Short positions)
- Trailing stops using moving averages or price action.
- reversal back into a previous trading range after a breakout fails.
- A reversal of a chart pattern back under the previous trend line.
- Technical indicator reversal signal.
- A profit target is reached.
Technical trading signals can use a confluence of multiple inputs from different indicators on a chart to verify a signal. Technical analysis and backtesting historical price data are the two primary components used to create trading signals. Fundamentals can be used to build a watchlist of stocks and identify what to trade but stock signals quantify when to trade them. One goal of using signals is to give traders a more mechanical and quantified method to remove the emotions involved in decision making on when to buy or sell a stock.
Trade signals quantify when to be long, when to be short, and when to be in cash based on the current path of least resistance on a chart. Stock signals can be as complex or as simple as a trader chooses but simple usually works best and most easy to implement. Technical stock traders using signals with an edge typically outperform traders that trade based on their own opinion, predictions and ego.