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Buy Signal

Buy Signal

25.03.2021

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Signals for buying and selling in trading

The market is constantly giving hints to traders. However, not all bidders are able to take advantage of this outstretched helping hand. To do this, you need to have sufficient theoretical and practical knowledge to help you see and correctly interpret a buy or sell signal in a timely manner.

Immediately, we want to make a reservation that the methods below are equally applicable to each trading platform and investment asset. As practice shows, there is not much difference with what a trader works. Classic trading signals are equally applicable for buying and selling shares on the stock exchange, for trading currency pairs on Forex, for operations in the cryptocurrency market, and so on.

What is the point of such signals or how does it work?

The rise and fall of quotations of investment assets are chaotic only at first glance of an uninitiated layman. The exchange lives by its own laws are based on principles and follow trends.

At different intervals, the market generates signals that indicate the beginning of a bullish or bearish trend. In such a situation, the trader’s task is formulated simply: to see such signs, interpret correctly, and take actions to open a long or short position.

It is important to remember the high risks of stock trading. You should not rush into the pool with your head. Work according to the following scheme: form a hypothesis – open a position – place a stop loss.

In a situation where this assumption is confirmed by practice, the trader finds himself in an ideal trading position. Long or short is open at the very beginning of the trend and there is an opportunity to make significant profits.

In a situation when the formed hypothesis turns out to be false, the open position is closed by the stop. This helps to minimize losses.

We ended up with an important, but still introductory part on the topic under consideration. Now let’s move on to looking at specific signals. Such signs are formed by technical analysis indicators, as well as candlestick formations or patterns.

Support and resistance

In the course of trading stocks or other assets, lines or levels are formed that do not allow the price to move freely up or down. Depending on the direction in question, they are called differently. The upward movement limiter is the resistance line, downward – the support line. These are the basic concepts of technical analysis.

Trading near such lines can give a trader a reason to open a trading position. Moreover, this can be both a signal to buy and to sell an asset. It all depends on the behavior of quotes in a particular case.

Let’s look at both situations separately.

Let’s start with the resistance line. The approach of quotes to such a price level is called testing. Further, there are 2 possible scenarios for the development of events.

First, quotes break through the resistance line and rush up. The moment of such a breakout is a signal to open a long. Secondly, the price of the asset hits the support line, pushes off from it, and rushes down. The moment of unsuccessful testing is a signal to open a long.

The above section of the graph of Sberbank ordinary shares illustrates one of the situations described. The quotes entered the price range with the resistance line of 201.96 rubles. After a while, testing of the indicated level took place. However, it was not successful. Prices reached 201.85 rubles and turned down. This was a clear signal to open a short position.

Now let’s look at the situation with the support line. Approaching prices to a similar level in trading is also called testing. Again, 2 options are possible.

First, prices break through the support line and go further down. This is a signal for a short. Secondly, prices are unable to overcome the resistance level, push off from it and bounce upward. This is a signal to open a long.

Let’s use the section of the Sberbank common stock chart again. As you can see, prices again entered the range with the support line at the minimum of 190.11 rubles. There were two unsuccessful attempts to break out when the quotes for pips did not reach the level in question. On the other hand, there were signals for short-term buying of shares when prices bounced upward. On the third try, the support line was broken, and traders got the opportunity to short-circuit.

Moving average

This is one of the most popular technical analysis indicators used for trading. With the help of the moving average, a trader can receive both a signal to sell and to buy an asset.

The moving average line is a graph of the arithmetic average price of the considered investment instrument (for example, a stock) for the specified number of recent trading sessions. This indicator can be easily configured for the trader’s tasks. To do this, it is enough to set the desired number of periods in the settings, which exactly corresponds to the number of considered trading sessions.

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