There’s no single “best” trading signal because the effectiveness of a signal depends entirely on your trading strategy, beliefs, and objectives. However, I can guide you on how to select the right signals for your system:

• Start with Your Beliefs: Your trading signals should align with your beliefs about the market. For example, if you believe in trend following, signals like moving average crossovers or Donchian channels might work well for you. If you prefer mean reversion, RSI or Bollinger Bands could be more suitable.
• Keep It Simple: Simple signals are less prone to curve fitting and tend to perform better in real-world trading. Overly complex systems might look great in backtesting but fail in live markets.
• Combine Signals Thoughtfully: Use signals that complement each other. For instance, a trend filter (like a moving average) can help you identify the market direction, while an entry signal (like a breakout) tells you when to act.
• Backtest Thoroughly: Test your signals as part of a complete trading system, not in isolation. A great entry signal is useless without proper exits, position sizing, and risk management.

Ultimately, the best signal is one that fits your strategy, is easy to execute, and has been proven to work through backtesting and live trading.

A signal in stock trading is essentially a trigger or indicator that tells you when to take action – whether to buy, sell, or hold a stock. Signals are derived from various tools, strategies, or market conditions and are a critical part of any trading system.

Here’s how signals work in practice:

• Trend Following Signals: These are designed to identify when a stock is moving in a sustained direction. For example, a price crossing above a 200-day moving average might signal a buy, as it suggests the stock is entering a bullish trend.
• Mean Reversion Signals: These focus on identifying overbought or oversold conditions, often using tools like RSI or Bollinger Bands. For instance, if RSI drops below 30, it might signal the stock is oversold and due for a rebound.
• Breakout Signals: These occur when a stock breaks through a key resistance or support level, indicating a potential strong move in that direction.
• Moving Average Crossovers: A common signal where a short-term moving average crossing above a long-term moving average (golden cross) signals a buy, while the reverse (death cross) signals a sell.

The key is to backtest any signal within your trading system to ensure it works consistently and aligns with your strategy. 

Trading signals can work, but their effectiveness depends entirely on how they’re designed, tested, and implemented. A signal is only as good as the edge it provides in the market, and that edge must be proven through rigorous backtesting and live trading.

Here’s what you need to know:

• Positive Edge: A trading signal must have a positive expectancy, meaning it should generate more profits than losses over time. Without this, you’re essentially gambling. For example, a 200-bar breakout signal has been shown to provide an edge in certain markets when tested properly.
• Backtesting: Signals need to be tested on historical data to ensure they perform better than random chance. If you’re not backtesting, you don’t know if your signal is effective or just noise.
• System Context: A signal alone doesn’t make a trading system. It must be part of a complete system that includes risk management, exit rules, and position sizing. Even the best signal won’t work if the rest of the system is flawed.
• Market Conditions: Signals can lose effectiveness if market conditions change. Regular monitoring and re-evaluation are crucial to ensure they still work as intended.

So yes, trading signals can work, but only if they’re part of a well-tested, complete trading system.

Professional traders may use signals, but they typically have their own trading systems and do not need to subscribe to signal servicesa. Here’s the breakdown:

• Systematic Traders: Many professional traders rely on signals, but these are signals they’ve developed themselves as part of a systematic trading strategy. They create objective, rules-based systems, backtest them rigorously, and then use the signals generated by these systems to guide their trades. This approach eliminates emotional decision-making and ensures consistency.
• Signal Services: Some professionals might use external signal services, but this is less common. When they do, they evaluate these services thoroughly – looking at historical performance, transparency, and risk metrics – before integrating them into their trading. Blindly following signals without understanding the underlying strategy is a recipe for disaster, as it leaves traders without control or confidence in their decisions.
• Diversification Tool: For time-poor professionals, signals from trusted services can sometimes be used as an additional layer of diversification. However, even in these cases, they’ll ensure the service aligns with their overall trading goals and risk tolerance.

Ultimately, professionals prioritize control, transparency, and testing. They don’t just follow signals blindly – they integrate them into a broader, well-thought-out trading framework.

A buy signal is triggered when specific conditions in your trading system are met, indicating it’s time to enter a trade. These conditions are based on your beliefs about the market and the rules you’ve set up. Here are some common triggers for buy signals:

• Trend Following: A classic example is when the price crosses above a long-term moving average, like the 200-day moving average. This suggests the stock is entering an uptrend and could be a good time to buy.
• Pullback and Resumption: If a stock pulls back during an uptrend and then resumes its upward movement, that resumption point can be a low-risk entry and trigger a buy signal.
• Volatility Breakout: A buy signal might occur when the stock breaks out of a narrow range or low volatility period in the direction of the trend. This often indicates the start of a strong move.
• Previous High Breakout: When the price exceeds the previous X-day high (e.g., 20-day high), it can trigger a buy signal, as this suggests bullish momentum.
• Custom Rules: You can design your own triggers, such as price crossing above a specific threshold or combining multiple indicators like moving averages or volatility measures.

The key is to backtest these triggers thoroughly to ensure they work within your trading system.

To learn trading signals effectively, you need to approach it systematically and focus on building a strong foundation. Here’s how you can get started:

• Document Your Beliefs: Start by writing down your beliefs about the market and trading. For example, do you believe trends persist? Do you think pullbacks are good entry points? Your beliefs will guide the type of signals you should focus on.
• Understand Common Signals: Familiarize yourself with widely used signals like moving average crossovers, RSI, Bollinger Bands, and breakout signals. A great resource for this is The Encyclopedia of Technical Market Indicators by Robert Colby, which explains a wide range of indicators and how they work.
• Learn the Components of a Trading System: Signals are just one part of a complete trading system. You need to understand how they interact with other components like trade setups, exits, and risk management.
• Backtest Signals: Use trading software like RealTest or Amibroker to test how signals perform on historical data. This will help you identify which signals align with your beliefs and have a positive edge.
• Join a Structured Program: If you want to fast-track your learning, consider joining a program like The Trader Success System, which teaches backtesting, trading systems, and how to select and optimize signals.

Traders get signals through a variety of methods, depending on their trading style, strategy, and level of expertise. Here’s how they typically do it:

• Technical Indicators: Traders use indicators like moving averages, RSI, Bollinger Bands, and MACD to generate signals. For example, a moving average crossover or a price breakout can act as a buy or sell signal.
• Custom Trading Systems: Many traders design their own systems based on their beliefs about the market. They document their objectives, strategies, and rules, then backtest these systems to ensure they generate reliable signals.
• End-of-Day (EOD) Signals: For simplicity and reduced stress, some traders focus on EOD signals, which are generated after the market closes. These are particularly useful for beginners as they allow more time for analysis and decision-making.
• Signal Services: Some traders subscribe to external signal providers. However, this approach requires caution – blindly following signals without understanding the underlying strategy can lead to poor results.
• Market Scanning Tools: Software like RealTest or Amibroker or other trading platforms can scan markets for specific conditions that match a trader’s criteria, generating signals automatically.

The most important thing is to ensure signals align with your trading strategy and beliefs, and that they’re part of a complete system with proper risk management.

Yes, you can make money from trading signals, but only if they’re part of a well-designed, thoroughly tested trading system. A signal on its own isn’t enough – it needs to have a proven edge and be supported by proper risk management, exits, and position sizing.

Here’s what matters most:

• Positive Edge: The signal must have a positive expectancy, meaning it generates more profits than losses over time. Without this, you’re just gambling. For instance, a 200-bar breakout signal can provide an edge in certain markets when tested properly.
• Backtesting and Validation: You need to rigorously backtest the signal on historical data to ensure it works consistently. This helps you avoid relying on signals that are no better than random chance.
• Complete System: A signal must be part of a broader system that includes trend filters, stop losses, and exit strategies. Combining multiple edges in your system dramatically improves profitability.
• Execution Discipline: Even the best signals won’t make money if you don’t execute them consistently. Confidence in your system, built through testing, is critical to sticking with it during tough periods.

So yes, trading signals can be profitable, but only when they’re part of a systematic, disciplined approach. 

Yes, you can find free trading signals, but they come with significant risks and limitations. Here’s what you need to know:

• Sources of Free Signals: Free signals are often available through trading forums, social media groups, or platforms like brokers and trading apps. Some providers offer free signals as a way to attract users to their paid services.
• Quality Concerns: Free signals are rarely backed by transparency or rigorous testing. Without knowing the underlying strategy or performance metrics, it’s impossible to evaluate their reliability or profitability. This lack of visibility makes them risky to follow blindly.
• Scams and Misinformation: The trading industry is rife with scams, and free signals are often used as bait to lure unsuspecting traders into expensive upsells or fraudulent schemes. Always verify the credibility of the source before acting on any signals.
• Execution Challenges: Even if a free signal is legitimate, you need to ensure you can act on it promptly. Delays in execution can erode any potential edge the signal might have.

If you’re considering using free signals, treat them as a learning tool rather than a shortcut to profits. It’s far better to develop your own trading system, as this gives you control, confidence, and the ability to validate your strategy. 

Trading signals have several disadvantages, especially when they’re not part of a well-thought-out, systematic approach. Here are the key issues:

• Lack of Control: When you rely on external signals, you’re outsourcing decision-making. This means you don’t fully understand the strategy behind the signals, leaving you unable to evaluate or adapt them when market conditions change.
• Psychological Challenges: It’s easy to lose confidence in signals after a few losing trades, especially if you don’t know the rules or logic behind them. This can lead to inconsistent execution, which undermines profitability.
• Transparency Issues: Many signal services operate as “black boxes,” providing little to no insight into how the signals are generated. Without this transparency, you can’t validate whether the signals are reliable or appropriate for your trading goals.
• Execution Risks: Signals often require timely action. If you can’t execute trades promptly – like placing orders before the market opens for end-of-day signals – you risk missing entries or getting worse prices, which erodes the strategy’s edge.
• Scams and Misinformation: The trading industry is rife with scams. Many signal providers overpromise and underdeliver, using misleading marketing to lure traders into expensive subscriptions or upsells.

Ultimately, relying solely on trading signals without understanding or testing them can lead to poor results. Building your own systematic trading approach is a far better way to ensure consistency and control.

The duration of a trading signal depends entirely on the type of strategy and timeframe it’s based on. Here’s how it typically breaks down:

• Short-Term Signals: These might last a few minutes to a few days. For example, a signal from a 10-day breakout system would trigger when the price exceeds the highest close in the last 10 days, and the trade might close quickly if the price reverses or hits a target.
• Medium-Term Signals: These are often based on daily bars and can last weeks to months. A 50-day breakout system, for instance, would generate a signal when the price exceeds the highest close in the last 50 days, and the trade could run for a longer period depending on the exit rules.
• Long-Term Signals: These are designed for extended trends and might last months or even years. A 200-day breakout system, for example, would trigger when the price exceeds the highest close in the last 200 days, and the trade would stay open as long as the trend continues.

The key is that the duration of a signal must align with your trading system, personality, and objectives. If you’re trading short-term signals but prefer a slower pace, or vice versa, it’ll be hard to stay consistent.

Traders give free signals for a variety of reasons, but it’s rarely out of pure generosity. Here’s why they might do it:

• Marketing and Lead Generation: Free signals are often used as a hook to attract traders to a paid service. Providers offer a taste of their signals to build trust and entice users to subscribe to premium offerings.
• Building Credibility: By sharing free signals, traders or services can showcase their expertise and track record, aiming to establish themselves as reputable in the trading community.
• Upselling Opportunities: Free signals often come with strings attached – like access to a basic version of a service – while the more “profitable” or detailed signals are locked behind a paywall.
• Community Building: Some traders share signals to grow a following on social media or forums. A larger audience can lead to monetization opportunities, like sponsorships or selling courses.
• Hidden Agendas: Unfortunately, some free signals are a front for scams or poorly tested strategies. Providers might use them to lure traders into expensive subscriptions or risky investments.

While free signals can seem appealing, they often come with risks, including lack of transparency and questionable quality. Always evaluate the source carefully before acting on them

Avoiding false signals in trading comes down to rigorous testing, clear rules, and disciplined execution. Here’s how you can minimize their impact:

• Backtesting: Test your trading strategy on historical data to identify how often false signals occur and how they affect performance. This helps you understand the reliability of your system and refine it if needed.
• Filters: Use additional criteria to confirm signals. For example, combining a breakout signal with a trend filter (like a moving average) can help you avoid trades that go against the broader market trend.
• Risk Management: Even with the best filters, false signals will happen. Proper position sizing and stop-losses ensure that a single bad trade doesn’t cause significant damage to your account.
• Avoid Overfitting: Don’t tweak your system to eliminate every losing trade in backtesting. Over-optimization can make your strategy too specific to past data, increasing the likelihood of false signals in live trading.
• Understand Market Context: Some signals work better in trending markets, while others perform in range-bound conditions. Knowing when your system is likely to perform well can help you avoid trading during unfavorable conditions.

By combining these steps, you can reduce the frequency and impact of false signals, though they can never be eliminated entirely.