Stock Trading Signals
By following a trading system, market
condition will at times be favourable to buy and at other times be favourable
to sell. Clearly defined conditions give 'signals' that the educated
investor can read and act on. Signals are not as crucial for the long
term investor. For these people, market conditions and the value of
particular companies can be watched on a daily basis. For day-traders,
however, signals are crucial for acting quickly on stock market movements.
Investors who treat trading as a full-time job have
the time to watch the market movements for signals. Oftentimes, however,
signals can be automated and integrated into trading software. The investor
can choose which signals to be alerted about and they will automatically
appear on screen. Software signals are usually only available by subscription
and some services charge hundreds of dollars a year for a complete package.
This includes trading software and access to up-to-the-minute charts
for the latest information about the stock market.
Investors who don't have the time to watch the market
closely can subscribe to services which publish signals on a daily or
hourly basis. These services may employ market analysts who may follow
several indicators to arrive at a particular signal. More commonly,
however, their systems are completely automated with signals being generated
by software which examines market conditions. Some of these services
have a better track record than others – it's a good idea to research
them before signing up.
With any third-party signal provider it pays to
know how the signals are being generated. Since there are such a large
number of market indicators some of them may contradict each other.
In addition, a particular indicator may send out conflicting signals
depending on the time frame.
Market conditions also play an important part on
the accuracy of indicators. During upswings in the market, for example,
trend indicators will send out buy signals but longer-term oscillator
indicators will view the market as being overbought and send out a sell
signal. Generally speaking, trend indicators are most accurate during
trend conditions and oscillators are best during times of transition.
Both types of indicators are often in variance with the other.
To overcome these problems, try to find a signal
generator that uses at least 3 market indicators for verification. Signals
that are verified by 3 different indicators are strong and tend to be
accurate. It is also important to look at signals from varying time
frames. An upswing may simply be a short term correction and the market
may afterwards continue its downward movement. Taking a broad view of
market conditions allows you to see these variations more clearly.
Depending on the type of service you sign up for,
signals can be delivered by email on a daily basis, available for viewing
on a website, or be integrated into your trading software so that popups
appear on your screen for particular signals that you are watching.
Companies which provide signals usually offer their
services on a monthly basis. Some are quite expensive – as high
as several hundred dollars a month. These are obviously aimed at the
professional trader but other services are also available at more reasonable
costs.
The value of these services has to be weighed by
the individual investor. They can be a great time saver but they may
also encourage laziness when it comes to analyzing the market. A knowledgeable
trader should have the tools necessary to judge the effectiveness of
a signal system and do some of the calculations himself to keep on top
of the market.
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