Stock Signals

Written by Jacey Harmon
Bookmark and Share

There are a variety of stock signals. They can range from indicating general market moves to changes in price direction for a single stock. There are primary and secondary stock signals that most should be aware of when trading stocks.

A primary signal is the price and volume of either the general market or individual stock. Something as simple as price and volume gets misunderstood and is often ignored by most investors. A clear sell signal in an individual stock would be a new price high on below average volume after an extended run. This type of price and volume action indicates that demand has worn thin and the stock's run is about to end. The price and volume action is the biggest signal available for any investor.

A type of secondary signal would be the put call ratio. The put call ratio measures the total amount of puts bought compared to the number of calls bought on any given session. A put is an option contract that is bought when a stock is expected to drop. A call option contract is bought when a stock is expected to rise. When the put call ratio jumps above one it often indicates that there is excess fear in the investing community. Excess fear indicates that most investors have already sold out of the market. When there is no supply of sellers there are only buyers to drive the market higher.

Other Types of Secondary Stock Signals

Most other stock signals are "overbought" or "oversold" signals. The Stochastic Index is computer generated and indicates "overbought" or "oversold" conditions. The MACD indicator is another signal that indicates "overbought" or "oversold" conditions by comparing two different moving averages. These types of indicators are not as reliable as price and volume and in bad markets tend to give false signals.


Bookmark and Share