Trading is exciting and not without risk – especially in markets that can change on a dime. Traders are responsible for researching the markets and analyzing charts before determining which setup to use. Using analytics, traders scout numerous stocks for key market signals.

Regardless of which strategy a trader uses, the risk threshold, or the size of the account, traders wait for the market to give up signals that allow them to determine whether to consider buying or selling a stock or stock option.

In a highly complex market – and not always what it seems – market indicators can be a tricky concept. Without them, traders would have no general sense of direction, but ten traders can each view a chart differently and have ten different opinions on what specific signals mean.

I’m sharing some of the market signals pertinent to my trading strategy so you can see what I look for when I conduct research. I want to help you make trading decisions based on your experience and education, not what ten different traders think.

What are Market Signals

A market signal is a trader’s analytical and technical interpretation to determine whether a stock or option is poised as a buy or a sell. Market signals can be identified using various means, but the most common methods are through the use of market indicators. I’m sharing the tools with you that I use every day to find my best setups.

My Favorite Technical indicators:

• The Squeeze Pro – For stocks under pressure 
• Trend Oscillator Pro – For trending markets
• The HiLo Pro – For choppy markets

My Favorite Analytical Indicators:

• 8 and 21 Exponential Moving Average (EMA)
• 50 and 200 Simple Moving Average (SMA)

Market signals may prove complex, but traders can count on relying on indicators as a trader’s best method in the markets. While the formation of a market signal can be defined in multiple ways, indicators verify a market signal’s validity.

Sign up for This Week in the Markets

If you are having issues looking for market signals, consider signing up for This Week in the Markets report. I give a high-level overview of the markets, indices, internals, forecast asset, directions, and scans of promising tickers and signals. Sign up today and get my detailed report every Sunday before the market opens.

How to Read Market Signals

There are very few things in life that we can observe and predict precisely. One thing we can expect is that the sun will rise tomorrow. How do we know that? Because the pattern of the sun has risen for billions of years. We can safely predict the sun will rise in the East and set in the West as it has done many times before. Yet, even with that, there is no guarantee that the giant star won’t have a cosmic reaction that could wreak havoc in our solar system. (Don’t worry, scientists tell us that’s unlikely to happen anytime soon.) 

Thankfully, the stock market is less dramatic than our sun’s health. While we cannot predict what the stock market will do, we can use indicators to observe patterns that tend to repeat in the markets to help us make trading decisions.

Like early scientists observing the stars to establish calendars, traders constantly use tools that allow them to monitor patterns and research setups to find market signals that suggest it may be the best time to enter or exit a trade. 

The best way to read market signals is to use charts and indicators that help determine where the market could go next. Traders should use two indicators – one that performs better in choppy markets and one that better analyzes trending markets.

Traders must recognize the signals that indicators give or won’t benefit from using them. I look for a few key signs in the market, such as finding reversals, lower lows, bounce points, and divergence. I use a dynamic set of indicators to find market signals: the HiLo Pro Indicator and the Trend Oscillator to look for these signals.

Finding Reversals

A reversal occurs when a stock price changes direction to the upside or the downside. In a perfect world, a trader would try to find a struggling stock, buy it at its lowest point, then watch as it gaps up in an upward trend. Or, the opposite could occur. Traders would love to find a stock that is trending at all-time highs, and hits its peak, thus allowing them to short the stock as it moves downward for a profit. 

However, those examples of reversals aren’t the norm. Often, a day trader or swing trader isn’t going to see these types of significant changes in trends. They most likely will find them in the daily or hourly charts.

Finding small but consistent signals for your trades is what matters, and these should be your focus. We would love to see a significant reversal for a gain that lets us take the rest of the year off, but in this game, we have to be realistic.

Lower Low

A lower low is a continuous signal that indicates to the trader that the stock closed lower than it did on the previous day. A lower low can be a concerning pattern as it communicates several issues with that stock. It displays that a stock has potentially lost support and could trend bearish for an undisclosed amount of time.

The chart below is an example of a lower low.

Bounce Point

A bounce point is a technical term that refers to a pattern when a stock price is trading around a critical support level. In the chart below, you can see that I am observing the support level at $298. A bounce point doesn’t mean much – but it should catch your eye. You will need to further your research when signals like this are present to consider if this is a viable trade. This could be a great price point if the stock can bounce back from the support level. However, if it breaks support, it could be in bear territory.

Divergence

Divergence is a market signal that reveals that the trend is the opposite of what the indicators display. Should the price go up or down, but the indicators are going opposite the price, this is called a divergence.

Below is the chart that shows a price that is way up in the Nasdaq exchange-traded fund (QQQ), but the Trend Oscillator Pro does not support the upward trend. A divergence typically means that the stock price is not supported and may drop off very soon.

Divergences are not timing signals in themselves, but they offer a reliable early warning sign that on any breaks of support/resistance, the price will move in a very impulsive way against the trend.

Why Market Signals are Important

Traders rely on market signals daily. Signals alert traders to opportunities in the market to buy, sell, or wait until something better forms on the charts. Many traders have a misconception that they should trade daily, but that is not the case. Sometimes the best trade is the one you didn’t make – especially when the market is screaming, telling us not to get in. However, we all live and learn. All traders have stories to tell about that one time.

Quite simply, traders must adjust to the market conditions and the signals it gives, regardless of whether it’s a bullish or bearish market. 

Researching the market to spot the best market signals can be overwhelming, so I created This Week in the Markets report. I want to give traders like yourself the best “intel” of what I find each week as I perform analytics. Each Sunday, traders receive my detailed list of sectors to focus on and calendar events that can impact the market. I also provide a weekly video that explains specifically what’s happening in the market. So, sign up today and don’t miss out on This Week in the Markets.

FAQs on Market Signals

Q: What are common indicators that can help find market signals?

A: Moving Average, Moving Average Convergence Divergence, and RSI are all common indicators that can help find market signals. The best part about them is that they are free to use on most major platforms.

Q: How long does a market signal last?

A: There are two types of market signals short- and long-term. Short-term signals can last from a few minutes to a few hours during trading. Long-term signals can last through the entire day to a week or more.

Q: Do market signals work? 

A: The short answer is yes, they do. However, traders who want to be consistent in their trades will want to rely on more than signals to make viable trades. Conducting analytical and technical research should be performed before every trade. A market signal should be seen as a possible trade that a trader will need to look into further. 

Q: What is a buy signal?

A: A buy signal is a market behavior that presents itself to a trader or an investor. It’s seen as an opportunity to be bought for a potential gain in the stock market.

Q: What is the best trend indicator

A: In my opinion, the best indicator that resonates with me is the  ST_Trend_Oscillator. It helps with trending markets. I use this when I want to confirm the trend and find out whether or not the market is in a bullish or bearish trend.