A false signal can occur when you notice that a stock is moving in one direction when in reality it is trending in a different pattern. It could happen for a variety of reasons. Some of these are just technical issues, but they are problems that must be explored regardless:
- A stock might be experiencing a timing lag. Information on stock prices might not happen as quickly as you might wish. It may be easy for you to think that a stock is going in one direction, but late-arriving information on how it is being traded shows otherwise.
- Data sources might not be consistent. The originator of the data on a stock might not always be reporting correctly. One source might say something about a stock but that information may still be false.
- A stock might go outside of a trend line. You could see a stock moving beyond a resistance band. It could be outside of the band for a while, thus giving you the impression that the stock will grow in value. This might also be a sign that the stock is not developing as well as it should.
