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False Signal

What is 'False Signal'

In technical analysis, a false signal refers to an indication of future price movements which gives an inaccurate picture of the economic reality. False signals may arise due to a number of factors, including timing lags, irregularities in data sources, smoothing methods or even the algorithm by which the indicator is calculated.

Explaining 'False Signal'

It is important for technicians to have a thorough understanding of the technical indicators they are using so that they are better able to detect false signals when they arise. Also, many technicians prefer to use a mix of technical indicators to function as a checking mechanism. Since trading on false signals can be extremely costly, trades are only placed when there is a consensus of technical indicators showing a future price movement.


Further Reading


Credible economic liberalizations and overborrowing
www.jstor.org [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

False (and missed) discoveries in financial economicsFalse (and missed) discoveries in financial economics
onlinelibrary.wiley.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

Repurchase announcements, lies and false signalsRepurchase announcements, lies and false signals
link.springer.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

False signals from stock repurchase announcements: evidence from earnings management and analysts' forecast revisionsFalse signals from stock repurchase announcements: evidence from earnings management and analysts' forecast revisions
papers.ssrn.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

Do false financial statements distort peer firms' decisions?Do false financial statements distort peer firms' decisions?
meridian.allenpress.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

The determination of financial structure: the incentive-signalling approachThe determination of financial structure: the incentive-signalling approach
www.jstor.org [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

Insider ownership and signals: Evidence from dividend initiation announcement effectsInsider ownership and signals: Evidence from dividend initiation announcement effects
www.jstor.org [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

Macro-financial vulnerabilities and future financial stress-Assessing systemic risks and predicting systemic eventsMacro-financial vulnerabilities and future financial stress-Assessing systemic risks and predicting systemic events
papers.ssrn.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …

Stock splits and false signaling cost within a management reputation frameworkStock splits and false signaling cost within a management reputation framework
clutejournals.com [PDF]
… Economics Department, Stanford University, Stan- ford, CA 94305, and Harvard Business School, Soldiers Field … setup costs and so stimulate current economic activity, easy credit signals that new … with rational beliefs have insufficient information to reject a false signal from the …



Q&A About False Signal


Why should technicians be aware of false signals?

It is important for technicians to have a thorough understanding of the technical indicators they are using so that they are better able to detect false signals when they arise.

How can you apply this concept in real life?

In job markets, potential employees send signals of their ability level to employers by acquiring education credentials. The informational value of the credential comes from the fact that employers believe it is positively correlated with having greater ability and difficulty for low ability workers to obtain. Thus, credentials enable employers to reliably distinguish low ability workers from high ability workers.

What is a false signal?

A false signal refers to an indication of future price movements which gives an inaccurate picture of the economic reality.

How can false signals arise?

False signals may arise due to a number of factors, including timing lags, irregularities in data sources, smoothing methods or even the algorithm by which the indicator is calculated.

Why do you think Spence's job-market signaling model works?

It works because there are many people who want jobs but not enough jobs available for everyone who wants them. Employers need a way to tell which applicants are more likely than others to be able to perform well at work so they can choose those applicants over other applicants with similar qualifications but lower likelihood of success on the job. Credentials provide one such signal because they show how well an applicant did in school or college and thus indicate how capable he or she will be at performing well on the job if hired. This allows employers to make better decisions when hiring new employees because they have more information about each applicant's abilities than would otherwise be possible without credentials as a signal of those abilities.

How does signalling relate specifically with competitive altruism ?

Competitive altruism occurs when individuals compete for resources that benefit others . They may do this either directly , by competing for resources that will go directly toward helping others , or indirectly , by competing for status or other types of rewards that will allow them access to resources that can then be used toward helping

What do many technicians prefer?

Many technicians prefer to use a mix of technical indicators to function as a checking mechanism. Since trading on false signals can be extremely costly, trades are only placed when there is a consensus of technical indicators showing future price movement.

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