Good Signal Vs Bad Signal (Fake Signal)

Many people do well in up market but not very well during down market.

Do you ever think why is this happening?

In technical analysis, one of the main pillar is market moves in trend.

From this aspect, we need to know market is uptrend, downtrend or sideway.

Why many people do well in up market?

Because during up market, up space is more than down space.

Figure 1

Green colour vertical line represent the up movement price distance.

Red colour vertical line represent the down movement price distance.

During uptrend, up movement price distance is MORE THAN down movement price distance.

Green line is LONGER than Red line.

While for down market, down space is more than up space.

Figure 2

During downtrend, up movement price distance is LESS THAN down movement price distance.

Green line SHORTER than Red line.

When you understand the characteristics of trend, then you can save lots of money.


Next let's see Good signal vs Bad signal.

During uptrend, many indicator give good signal and good entry.

Below example is used the most widely used indicator RSI.

Chart 1

For chart 1, RSI given 3 oversold signals if buy at that moment which are 100% winning rate as after entered position price start to move up.

In uptrend, you can blindly follow the indicator buy signal and mostly can earn profit without much problems.

This is because up space more than down space.


However when come to downtrend market, indicator buy signal can be a nightmare.

Chart 2

In this downtrend chart, RSI got 8 oversold signals. If we followed all these buy signals, got 5 signals after entered position price still moving down and some of them evening move down steeply.

3 of  8 buy signals can earn profit.

5 of  8 buy signals is Bad signal or so called FAKE SIGNAL which can make you lose money.

Therefore, many buy signals from indicators work well in uptrend but not in downtrend.

If you know when to buy and when NOT TO BUY, your stock return would be awesome.

Learn how to see the trend and follow the trend.

Hope this can help you improve your stock return on investment and avoid the TRAP.

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