You come to the stock exchange and see a barrage of charts and quotes flashing and moving non-stop. Futures, ETFs, bonds seem incomprehensible. It’s enough to make your head spin. What should you pick and use? And how do you figure out what will rise tomorrow and what will fall? At first, everything seems as unpredictable as the results of games at Playamo Canada. To answer these questions, you need to understand market signals.

What Are Market Signals?

Signals surround us everywhere: car honks, traffic light colors, messages on station boards, or subway signs. A signal is an alert that prompts us to take action. For instance, if you call out to your friend and wave your hand, that’s a signal showing you’re nearby and want to greet them.

Financial markets also send us various signs and signals. The stock exchange itself doesn’t directly say or show anything, but by analyzing trading data, news, and economic indicators, we can identify them. Simply put, market signals are events that guide us in deciding when to buy and sell certain assets.

Here’s an example: Tom is a novice investor. He wants to buy shares of Company A and later sell them at a higher price. But recently, this company hasn’t been doing well: first, COVID-related restrictions were imposed on businesses, and then competitors started dumping prices. As a result, Company A’s stock price has hit a historic low. Tom is confused and doesn’t know the best time to buy these shares without making a mistake. Then, the company releases a report about its performance and future development plans. Tom reviews the documents and concludes that the organization’s prospects will soon improve, and its stock price will rise. These documents are trading signals for Tom.

Types of Market Signals

Trading on the stock market involves two types of analysis: fundamental and technical.

Fundamental Analysis

This approach relies on significant external (fundamental) factors. Trading signals in fundamental analysis include:

  • Recently released financial reports, development plans, announcements, ad campaigns, product releases — in general, anything related to the company’s activities.
  • Economic indicators in the country, such as employment statistics, business activity levels, production rates, tax rates, customs duties, and so on.
  • Geopolitical events, including economic sanctions, military actions, international agreements, and similar processes.

By monitoring fundamental events, you can entirely ignore technical analysis. Conversely, technical analysts place less emphasis on fundamental aspects. Their tools are candlestick and line charts, indicators, patterns, wave price analysis, support and resistance levels, and so on. In technical analysis, signals are based not on external factors but on the price level at a given moment.

Here’s an example: John trades on the stock market daily. He is a professional trader. Unlike Warren Buffett, he can’t buy securities for the long term. For John, trading is a steady source of income. Every day, he needs money for food, clothes, internet, and other daily expenses. So, John buys and sells company shares using signals from wave theory and Japanese candlesticks (technical analysis signals). He is interested in stock price fluctuations, and signals include reaching a specific price level, the number of bids in the order book, or a price pattern on the chart.

Signals in the Cryptocurrency Market

Things work a bit differently in the cryptocurrency market, though the signals are essentially the same. For example, a fundamental signal might be the recent crackdown on miners by Chinese authorities. Charts are universal (in the sense that you can find patterns and trends for any asset), so technical analysis for cryptocurrencies provides signals just as effectively as it does for other markets.

In the cryptocurrency world, messages from various celebrities and experts on social media play a significant role. For instance, when Elon Musk posts yet another meme about his favorite cryptocurrency, Dogecoin’s price changes dramatically. Are the tweets of the American billionaire market signals? Absolutely — they trigger people to buy or sell.