UK Accounting Glossary
A signal line is a term commonly encountered in technical analysis. Technical investors use a signal line to help them decide when to buy a stock or sell a stock. In general, a signal line is derived by plotting a moving average against a technical indicator. The Moving Average Convergence Divergence (MACD) indicator and the stochastics oscillator are among the most frequently used indicators to generate a signal line. A MACD signal line is based on the difference between a short term moving average and long term moving average. A stochastics oscillator signal line assesses a stock’s momentum by relating the current price of a stock to its price range, with the aim of predicting turning points. In both cases, indicators that cross above their signal line are considered a “buy.” Indicators that cross below their signal line are considered a “sell.” The triple exponential (TRIX) is also sometimes used with a signal line. Some investors refer to a signal line as a “trigger line.”
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This glossary post was last updated: 5th February 2020.