Trading Signals

What is a Trade Signal ?

A trade signal is a trigger for action, either to buy or sell a security or other asset, generated by analysis. That analysis can be human generated using technical indicators, or it can be generated using mathematical algorithms based on market action, possibly in combination with other market factors such as economic indicators.

Basics of Trade Signals

Trade signals can use a variety of inputs from several disciplines. Typically, technical analysis is a major component, but fundamental analysis, quantitative analysis, and economics can also be inputs. They can include sentiment measures and even signals from other trade signal systems. The goal is to give investors and traders a mechanical method, devoid of emotion, to buy or sell a security or other asset.

Aside from simple buy and sell triggers, trade signals can be used to modify a portfolio by determining when it might be a good time to buy more of one particular sector, such as technology, and lighten up on another, such as consumer staples. Bond traders could have signals for adjusting the duration of their portfolios by selling one maturity and buying a different maturity. And finally, it can also help with asset class allocation such as shifting money among stocks, bonds, and gold.