Forex Dictionary Terms

Trading Signal

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Definition – What does Trading Signal mean?

A trading signal is a sign produced by the analysis of a currency pair’s price action. Trading signals are created by applying technical analysis to the chart of a currency pair. The analysis highlight points in the price action where a forex trader could profit by entering or exiting a position. As such, there are really only two trading signals: buy and sell.

ForexTerms explains Trading Signal

Forex traders use technical analysis to create their own trading signals to fit the trading system they are working with. Traders look at historical data and charts to discover where the most profitable trades would have been and what, if any, patterns occurred in the price action.

Trade signals can be the centerpiece of a trading strategy or merely a component. If a trader can identify a specific pattern that repeats, he can make it a trading signal and create a strategy around trading whenever that pattern/signal appears in a currency pair’s price action. Alternatively, a specific strategy, such as scalping, will require a trader to create and test many different trade signals to find a set that offers reliable profits on many short term trades.

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