Generate your own trading signals through analysis

While investing in the stock market is increasingly attractive to retail investors, this practice is not reserved for beginners but requires the ability to detect trading signals before implementing a strategy. In this article, we will therefore explain how you can obtain such signals using two methods that are well known to online traders, namely technical analysis and fundamental analysis.  

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Generate your own trading signals through analysis

Detecting trading signals with technical analysis :

Let's start here by looking at the technical analysis. This method involves studying price movements in the financial markets in order to anticipate future movements using the history of charts for a given asset. This analysis is therefore based on the fact that an investor can identify market trends from a purely graphical and mathematical point of view in order to use them as signals for future price trajectories. This technical analysis is one of the two main methods of market analysis along with fundamental analysis, which we will explain below. Technical analysis differs from fundamental analysis in that it is based solely on charts of an asset whereas fundamental analysis attempts to determine the true value of an asset based on external factors and indicators.

Among the technical analysis tools and instruments used to identify rising or falling price signals and thus trends over the more or less long term, we find psychological thresholds such as support and resistance levels, moving averages or Bollinger Bands. These indicators, to which we will return in more detail in dedicated articles, are all intended to enable technical investors to better understand the charts by visually identifying trends and market strength.

The main advantage of technical analysis is that it allows the detection of price trend signals in a market, which is the basis of any investment strategy. Indeed, many use these technical indicators to identify buy or sell signals. It is also known that technical analysis has become so popular that some people consider it a method that has created trading rules that make themselves concrete. Indeed, as many investors use this method to take positions, buyers and sellers are increasingly grouped around the same price levels, which ultimately leads to the expected trends.

But technical analysis is not a 100% reliable method either, as there are always external elements that influence the market. Indeed, the price history of an asset from a graphical point of view only gives a glimpse of the probable trend of an asset without any guarantee. To obtain a greater level of certainty, investors should also use several indicators and analysis tools and implement an effective risk management strategy to protect them against an adverse movement.


Detecting trading signals through fundamental analysis :

The other type of analysis that is essential in trying to obtain effective trading signals is fundamental analysis. The objective of this analysis is to assess as accurately as possible the true value of a particular company or industry. In reality, fundamental analysis is not an exact science either, but rather the intersection of several disciplines.

In order to obtain signals about a stock on the stock exchange, a fundamental analysis of the company issuing it will be carried out. However, this evaluation is not limited to an analysis of the company's balance sheet or income statement. It is indeed necessary to add other studies such as strategic analysis which aims to determine the positioning of the company vis-à-vis its competitors or in its sector of activity, the study of the political and economic environment or the human resources of the company.

It will thus be necessary to use and understand certain economic concepts in order to situate the company in its environment and to estimate its growth potential according to its investments or strategies. Fundamental analysis is therefore not a simple financial analysis but a more general approach to all aspects that may have an impact on the growth of a company or a value.

Its aim is thus to determine in the best possible way whether a company is over- or undervalued and thus to detect likely signals of a rise or fall in its share price. There are many online resources available to perform this type of analysis, such as company balance sheets, news, strategic development plans and merger and acquisition reports.

Of course, as is also the case for technical analysis, fundamental analysis alone does not provide consistent trading signals and it is essential to carry out these two analyses simultaneously in order to refine an online investment strategy.

Frequently Asked Questions

Can we use trading signals provided by third parties?

You may have noticed that the web is full of sites that offer daily or weekly trading signals for a monthly subscription. While it is of course possible to use such signals to trade online, we recommend that you always check their quality by carrying out your own technical and fundamental analyses in parallel. Furthermore, these signals are not guaranteed.

What are the three types of trading signals?

There are actually not two types of trading signals, but three. The first signal is the buy signal. It means that, according to the analysis made, the price is more likely to move upwards. Then, of course, there is the sell signal, which indicates that the trend is more likely to move downwards. But sometimes you can also get a neutral signal that indicates a marked lack of trend and invites you not to take a position.

Are trading signals effective?

The effectiveness of the trading signals you will use will depend on how you get them. Always keep in mind that trading is never a 100% reliable activity and that risks are always present, no matter how good the signals and analysis you use.

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71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.