Also known as a trading signal, a trade signal is an indication that circumstances within a given market or exchange are favorable for buying or selling a specific security. Signals of this type are often generated by third parties such as brokers or dealers. The signals may also originate with financial or industry analysts who pass the recommendations on to investors. In most cases, a trade signal is developed based on the interpretation of technical data by qualified investment professionals.
The actual format for a trade signal will vary. In some cases, analysts interpret technical indicators that have to do with a given market and apply those findings to the projected movement of a given stock or other type of security. When presenting this data to a client, the analyst may use different types of charts or other visual illustrations to explain the nature of the data and how that data relates to a given security. The idea is to help the investor understand what is happening in the marketplace, how those events are likely to impact a given investment option, and why the investor should respond to these events by executing a specific transaction.
Just about any type of investment market can make use of a trade signal approach. In the FOREX market, investors and dealers can utilize this strategy to determine the best combination of currency trades to place, and when to place them in order to generate the highest amount of return. In like manner, investors in commodities or the stock market can also make use of signals provided by trusted sources like analysts and brokers to determine when to buy, hold, or sell a given security. Since the basis for a trade signal is the correct interpretation of technical indicators present in the market, this approach can enhance the potential of other investment strategies, as it helps to ground those strategies in facts rather than in hunches.
It is important to note that even the most carefully prepared trade signal may prove to be inaccurate. Data that was not available when the signal was developed or unanticipated events that modify the indicators used to create the signal can and sometimes do alter the outcome of a given transaction. For this reason, investors should always evaluate the underlying reasons connected with a trade signal determine they are in agreement, and then make a decision regarding buying or selling the security in question.
