Signal Definition
A Signal is the specific event that says when to get in or out of a stock.
Extra Insight:
Some signals are objective, for example price hitting a 52-week high. Others are more subjective, for example magazine covers depicting emotional extremes can signal the end of a trend.
For backtesting, we need objective signals that can be evaluated by a computer program.
During backtesting, the computer will take every signal promptly.
A human trader may ignore a signal or delay taking action — particularly if it is painful! A human trader may also act even in the absence of a signal, buying when they feel like shopping or selling when they feel fearful, regardless of the signals from their trading strategy. In this case, the profit/loss performance will differ from the backtesting result.
Updated 11/22/08.
October 16th, 2008 Filed under GlossaryTags: backtesting, loss, selling, signal, trading
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