DEFINITION of 'Buy Signal'
An event or condition that alerts investors to purchase a particular investment. Buy signals can simply be observed by astute investors and analysts, or they can be indicated by trading software or charts. Momentum traders, for example, might rely on two charts, the moving-average-convergence-divergence histogram and the exponential moving average histogram, for a buy signal.
BREAKING DOWN 'Buy Signal'
Some investors (contrarians, for example), consider it to be a buy signal when large numbers of investors pull out of the stock market. This is because widespread bearish sentiment among investors can indicate a market bottom. When a market is at or near its bottom, it can be a good time for investors to pick up stocks at prices that are lower than their true value.