Term:BUYING SIGNAL

A technical term which refers to a specific event or occurrence which signals to a chartist that it is the correct time to go long (i.e to buy in). The simplest example of a buying signal is where the price of a share breaks up through its moving average – but almost every charting method and trading strategy offers buying signals at points in the chart which are deemed to offer the best opportunity to make a capital gain as the price rises. For example, it is good to buy when the slow stochastic breaks up through 20 at the same time as its two-thirds moving average is rising. With the relative strength index (RSI), a buy signal is given when the RSI breaks up through 30. With the On Balance Volume (OBV) a buy signal is given when the OBV line rises almost vertically. Consider these three charts:

Buy Signal

Buy Signal – Chart by ShareFriend Pro

The top chart is a candlestick chart of a share, the second chart shows it’s OBV and the third chart is a volume histogram. You can see how the OBV chart suddenly takes off vertically just before the price moves up strongly. That is a classical OBV buy signal.

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