How are trading signals generated?
The vast majority of trading signals are based on technical analysis, more precisely on the combination of various technical indicators. On top of such systems, further filters can then be applied, based on similar combinations of indicators. In theory, this approach can be twisted and turned into an infinite number of signal generators. That however does not solve a problem that all automatic signal generators have, namely that they're unable to account for the fundamental factors. While from a human perspective, fundamental analysis is easier than technical analysis - after all, it's basically about trading the news - from a mathematical perspective, technical analysis is infinitely easier to automate. Save for some extreme AI solutions, the fundamentals cannot be automated at all. This is why signal generators will fail over the long-run. Shrewd traders have a sort of half-baked solution for this problem. They keep an eye on the market, and whenever there's increased volatility on account of the fundamentals, they simply turn their signal generators off, or do not act on the signals.
