What is a Trading Signal?

trading signal

A trading signal is a trigger or a suggestion for action, either to buy or sell securities and other assets, usually generated by analysis. A trading signal can be generated using algorithms based on market action, in combination with other factors such as economic indicators.

example of trading signals on forex currency pairs from wikisignals.com

A forex trading signal is a suggestion to either buy or sell a currency pair, usually at a specific time and price. A stock forex signal is a suggestion to either buy or sell a stock for example.

How are Signals Triggered?

The major component of trading signals is typically technical analysis. However, other inputs can also be used sometimes, such as fundamental analysis and economics. The goal of a trading signal is to give the trader a mechanical method; meaning a call to action to buy or sell a security, completely devoid of emotion and based solely on analysis.

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Some of the common inputs that help determine a correct trading signal are:

  • Technical patterns such as triangles, rectangles, head-and-shoulders, and trendlines.
  • A volume surge: High volume is often a precursor to a move in the market.
  • Interest Rates: Change in interest rates can suggest changes in stock and commodity markets.
  • Volatility: Extreme highs and extreme lows can trigger market changes.
  • Moving Average Cross
  • Cycles
  • Valuation: An excessively high valuation can lead to sell signals.

There are hundreds of trading signal providers around the web, and Investment Pips doesn’t recommend using a specific provider. However, after much testing, we have found that wikisignals.com provides some of the more stable signals with a higher than average success rate so far.