Many of us spend years looking for the holy grail trading system. Signal services can be a great way to use someone elses carefully developed system. By following a trading system, market condition will at times be favorable to buy and at other times be favorable 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 and what we call active 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 – make sure you get a free trial before purchasing. Also, make sure you paper trade some of the signals first and see if they truly match up to reported results. This is the best test before spending your money on more books and software.
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.
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. Keep this in mind. We have frequently seen peoples with $1,000 to invest pay $200 a month for a system. That system might be great, but is it really going to make enough every month (20%+) to cover just your fees? If your starting capital is small, so must be the investment you make in signals.
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. Finally, make sure your signal service provides an exact strategy when to sell. When to sell is usually what is the difference between the small number of super successful traders and the larger numbers of unprofitable traders. If there is no exit strategy, you do not have a system and you’ll want to move on. The best signal services give non-subjective entries and exits.
Anthony Trister provides stock trading analysis and investing advice and reviews at http://www.stock-trading-resources.com