What a signal is
A signal indicator applies a fixed set of rules to price data and marks the bars where those rules are met. For trend-following indicators such as UT Bot, the rules are designed to detect when price has moved far enough, relative to recent volatility, to suggest a change in direction. A signal tells you:- The indicator’s conditions were met on this bar.
- With the current settings, on this symbol and timeframe.
- That price will continue in the signaled direction.
- How far price will move, or where to exit.
- Whether this is a good trade given your risk, position size, or the broader market.
Why signals fail
Every signal indicator produces false signals. Common reasons:
Trend-following signals are a trade-off: catching trends early means accepting more false signals, and filtering out false signals means catching trends later.
Using signals well
1
Understand the indicator's logic
Know what conditions produce a signal. For UT Bot v2, see How It Works.
2
Wait for confirmation
A signal on a bar that is still forming can disappear. See Confirmed vs Unconfirmed Signals.
3
Consider context
Check the higher-timeframe trend, nearby support and resistance, and upcoming events before acting.
4
Review history honestly
Scroll back through the chart and look at the losing signals as carefully as the winning ones. Keep in mind that looking at past charts is not a reliable predictor of future behavior.
5
Manage risk independently
Decide your position size and exit before entering. An indicator signal is not a risk management plan.