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Smart Stock Investing With Trading Signals

May 23, 2008
Trading signals are one of the watchwords for making money through a brokerage account. In a nutshell, for the market and commodity or stock or currency you're trading in, a trade signal is something that indicates it's time to buy, or to sell, that particular investment.

Accurate trading signals are one of the key secrets that lots of smart stock investing advisors try to convince you that they've got that the rest of the market doesn't. And they'll try to show you by loading lots of trend lines and graphs, matching prices against a time sequenced trend line.

Let's break down the numbers though because a lot of trading signals are, quite simply, common sense. The most common trading signal is when a price suddenly drops which is usually an indication that it's time to sell and capitalize on your gains to date. Use of this trading signal is one reason why stock markets and commodity markets are considered volatile.

When something dips in price, everyone is trying to unload, and a trend can turn into an avalanche.
Because this trading signal gets programmed into so many automated trading programs, there are even regulations that close the market when it loses a given fraction of its volume.

So, that's the obvious trading signal on price declines. What's another good trading signal on buying a stock or commodity? For investments that are less prone to quantitative analysis look to the daily news. This is the reason why investment brokers always have the news on. Any kind of news that impacts national security will make most stock markets go down. An absence of news covering national security will allow you to focus on what sectors are growing rapidly in the economy.

Within the economy you want to keep an eye out for companies that are making new products, or reaching new customers with existing products. Ultimately, everything comes down to getting products to consumers. Watch for supply chain issues which can cause hiccups in price, and even long tem rising prices in a stock.

For commodities trading, you're looking for indicators of supply as well. Oil is and examle of this. When there's a war in the Middle East, oil prices rise. When new oil fields are discovered, the price of oil companies may go up per share. But watch out because the price of oil itself may remain flat, or even decline a bit. Oil can be a very inelastic commodity in terms of supply and demand.

Branching out from oil, commodity trading signals for agriculture include the price of oil since it takes oil to make fertilizer and get produce to market. Bad weather can negatively impact crops, and even government policy decisions like subsidizing E85 ethanol affect the market.

Ultimately, you want to take all the data you can, and set your own victory conditions on it. Sell when the commodity reaches a given price, buy when you see a certain amount of upward movement in a certain period of time. Smart stock investing is all about using those prices over time trend line graphs and marking the historical reactions to outside forces.
About the Author
Matt blogs at http://initialpublic.com/finance/ and invites you to find more smart stock investing tips.
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