Signaling Approach

Technical analysis is the tool, and the signaling approach is the behavior.

People who do technical analyses are looking at a bunch of indicators, waiting for them to hit certain thresholds or change directions. When the indicators hit those thresholds, the trader pulls the trigger and does some trading. This is what the signaling approach is all about: making trades and investments based on changes in data.

There's almost no end to the kinds of data you could use for the signaling approach. You could analyze what company insiders are doing with their shares, or certain economic indices that signal consumer or manufacturing confidence. Deep dives into data, using analyses on stock volatility, trading volume, and derivatives markets are used for the signaling approach, too.

If that sounds tedious, it is...if you’re a human. Today, we can plug all those economic indicators into a computer, and have the robots do the heavy lifting for us. Not only can robots analyze these indicators much faster than people, but they can also execute trades instantly. Oh, the magic of algorithms.