False Signal


DEFINITION of 'False Signal'

In technical analysis, a false signal refers to an indication of future price movements which gives an inaccurate picture of the economic reality. False signals may arise due to a number of factors, including timing lags, irregularities in data sources, smoothing methods or even the algorithm by which the indicator is calculated.

BREAKING DOWN 'False Signal'

It is important for technicians to have a thorough understanding of the technical indicators they are using so that they are better able to detect false signals when they arise. Also, many technicians prefer to use a mix of technical indicators to function as a checking mechanism. Since trading on false signals can be extremely costly, trades are only placed when there is a consensus of technical indicators showing a future price movement.

  1. Trade Signal

    A sign, usually based on technical indicators, that it is a good ...
  2. Forex Signal System

    A set of analyses that a forex trader uses to determine whether ...
  3. Signaling Approach

    The idea that insiders have information not available to the ...
  4. Trigger Line

    A moving-average line found in the moving average convergence ...
  5. Signal Line

    A moving average plotted alongside a technical indicator and ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following ...
Related Articles
  1. Active Trading

    Trading Without Noise

    False signals can drown out underlying trends. Find out how to tone them down and tune them out.
  2. Technical Indicators

    Simple Moving Averages And Volume Rate-of-Change

    We teach you how to confirm buy and sell signals by comparing two very simple indicators.
  3. Trading Strategies

    MACD Histogram Helps Determine Trend Changes

    Learn how this momentum indicator is used to determine price action on a stock.
  4. Forex Education

    Stochastics: An Accurate Buy And Sell Indicator

    Find out how stochastics are used to create buy and sell signals for traders.
  5. Forex Education

    Mastering Short-Term Trading

    Making money in a pressure-cooker environment is all about minimizing risk on hot picks.
  6. Active Trading

    Relative Strength Index And Its Failure-Swing Points

    Confirm your buy and sell signals with this oscillator categorized as an overbought/oversold index.
  7. Chart Advisor

    Rare Earth Metals Continue To Struggle

    Rare earth metals are used in many of today's products and many investors are wondering if consumer demand is enough to offset the global economic slowdown. We'll take a look at how they are ...
  8. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  9. Chart Advisor

    2 Short-Term and 2 Longer-Term Trade Ideas

    Two shorter-term and two longer-term trade ideas to consider, based on trends and the possibility of a breakout.
  10. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  1. What are the most popular volume oscillators in technical analysis?

    The most popular volume oscillators in technical analysis are the Percentage Volume Oscillator, or PVO, and the Chaikin Oscillator. ... Read Full Answer >>
  2. What are the best technical indicators to complement the Moving Average Envelopes?

    Technical indicators that place bands around trading ranges are meant to identify support and resistance levels and indicate ... Read Full Answer >>
  3. Why is the Money Flow important for traders and analysts?

    Traders and analysts use money flow as an important indicator of volume, a way to represent the inflow and outflow of investor ... Read Full Answer >>
  4. What are the best ways to protect trade positions against false signals?

    False signals are generated whenever an indicator provides an inaccurate reflection of market sentiment. Sometimes false ... Read Full Answer >>
  5. What are common strategies traders implement when identifying a Bullish Harami?

    Candlestick chartists look to bullish harami patterns as signs of possible trend reversal. These patterns appear most frequently ... Read Full Answer >>
  6. What is the Directional Movement Index (DMI) formula and how is it calculated?

    Legendary trader and author J. Welles Wilder Jr. introduced the directional movement index, or DMI, in 1978. Wilder wanted ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center