What Are Trading Signals?
Trading signals are timely indicators to either buy or sell a security to maximize profits in the market.
Quant trading signals are like a GPS navigation system. Just as a GPS navigation system uses data from satellites to calculate the optimal route to a destination, quant trading signals use historical market data and statistical analysis to calculate the best trades or investment opportunities.
The GPS navigation system will give you instructions on when to turn, what route to take and how long it will take to reach your destination. Similarly, quant trading signals tell you when to buy or sell a security, what securities to trade, and how long you should hold them.
Advanced traders can get these signals through their models, while others can subscribe to models available in the market for trading and investing. We will also explore the various signals that can be received and explain ways to act on them.
How Do Traders Get Signals?
If you are like most people and do not have a multi-pc powered data churning model, there is nothing to fear.
Today the market has many data-driven trading models that you can subscribe to receive signals. At Investmint, we house multiple models based on traders’ preferences: Trending Ten, BTST, and Sector Superstars, to name a few...
Different models communicate through signals in different ways. Some give signals at fixed intervals, requiring trades to be placed within tight time windows, while others allow to place orders over varying lengths of time.
Some signal types to explore are listed below.
Types of Trade Signals
A common type of trade signal is an actionable Buy/Sell signal. These are triggered when a condition designed in the Model is validated. You receive a Buy/Sell signal at the breach of a particular volume/price level or at any price during a designated time interval.
The signals are received for varying periods: daily, weekly or monthly, depending on how different models work.
For example, Quick Short has a window of 5 minutes in which you can place a Buy/Sell order . On the other hand, High Five is a weekly model allowing you to place trades throughout the Monday trading day.
A basket signal is a buy/sell signal for multiple stocks, it works for a set of securities or stocks being bought or sold together. For instance, Trending Ten is a model which uses basket signals to update the set of securities it holds.
Swap signals are an advanced category that follow up after a basket signal. They balance a set of securities in a model for weightage, exit, or entry of a new security(ies).
Several models will use the above signals to help you trade in the stock market. But additional signals are required when engaging in F&O trading.
Stop Loss Signals
Whenever you receive a buy/sell signal for derivative security, it also triggers a stop-loss signal. Stop loss signal closes one’s position in the market.
Check out an easy-to-follow example below.
Suppose on day 1. A signal was issued to buy for Rs.100; It will be followed by a signal to sell at 95 if the price goes down. As the name suggests, a stop-loss signal exists to limit one’s loss.
Suppose on day 2. The stock climbs to 110; you will receive a stop loss signal to update the selling price to 100. The trade closes when either the stop loss is hit or you receive a signal to close the trade, at which point you realize the gains made over past day(s).
Trade Signals For You
The post hopefully gives you a rough idea of how trading signals work. Trade signals simplify your life by removing the constant worry of monitoring the markets. The models track market data every millisecond, from the market opening to closing. We construct the signals to be very simple, clear, and straightforward. They make it easy for traders to navigate through the stock markets just like, you guessed it, a GPS.