How to identify a good trading signal
But you probably ask yourself the question: “Could I not buy DH1 shares at $ 11.50 several times between November 2002 and March 2003? Why wait until the release of shares of the DHIm trading range will increase the price of my entry? "
Here is the answer to this question: it is very important to identify a good trading signal, but it is even more important to avoid bad trading signals.
It is very difficult to predict the future. Of course, backdating you can argue that buying DH1 shares at $ 11.50 would give you the opportunity to make more money than buying the same shares at $ 14. But when their price was $ 11.50, how could you know that Will DH shares go out of their trading range, and not remain in it for many months or even years? Or how could you know that stocks of DHI, going beyond their trading range, will not start to fall in price and this fall will continue for many months?
But it could well happen. Generally speaking, if these stocks were trading below their support area,technical analysis would point us to the resumption of an earlier downtrend and the potential possibility of short selling shares of DHL
Another important reason to wait for the stock to go out of the trading range is that when you enter a trade, you must prepare in advance an exit strategy. Strategies for exiting trades are discussed in more detail in x 12-14, but at this stage it is important for you to remember that the moments of exit from your position are determined using appropriate trading signals, just as the presence of corresponding trading signals is also required to determine the moment of entry into a position. If you try to buy stocks on the “bottom” and then sell them on the “top”, you will not have signals at your disposal that would tell you how successful your entry signal was.
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