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No one likes to be misled when it comes to getting information on stocks. It is just something that can occur at any time. In particular, you might come across many false signals. A false signal is a sign that a price is going to move in a certain direction, but it is not necessarily reflective of the changes that will come about in the future. For instance, you might notice in a pennant pattern that a stock is expected to move downward after the pennant is completed. However, midway through, the pennant makes a dramatic move as the stock breaks out and moves up.
Sometimes the false signal might be a short-lived one. The stock might move back to its original value and then the pennant will continue. In some cases, the false signal could be significant enough to produce a ripple effect within the stock where its price dramatically changes and shifts. Knowing how to avoid a false signal is vital to your trading strategies. This chapter will help you understand what can cause such signals to develop while looking at what you can do to recognize them.