Are trading signals truly reliable? A deep dive into this "double-edged sword" tool

Many people lose everything by blindly following trading signals. This is not an alarmist statement — every day, beginners suffer losses due to over-reliance on signals. But does this mean we should completely abandon trading signals? Not necessarily. The key lies in understanding and using them correctly.

What are trading signals, and what is their true purpose?

Trading signals are essentially “market prompts” that tell you when it might be time to enter or exit a position. These prompts can come from three different sources: automated analysis by algorithmic programs, manual recommendations from experienced market participants, or intuitive observations from charts and technical indicators.

The problem is: many beginners act immediately upon seeing a signal without asking themselves “why” this signal exists. They treat signals as gospel, which often results in continuous losses.

The three main sources of trading signals and their reliability

First type: Signals generated by machine intelligence

These signals are automatically produced by trading robots or quantitative platforms based on preset algorithms. It sounds high-tech, but there is a fatal flaw: algorithms can only recognize patterns that have already appeared in the past. When the market experiences new changes or black swan events, these machines become “deaf.” For example, an RSI indicator suggests an asset is oversold and recommends buying. But this signal ignores a deeper question — are there any underlying negative factors in the market?

Second type: Signals generated by human analysis

These are suggestions made by traders or analysts based on experience and observation. The quality of these signals depends on the provider’s expertise. A analyst with ten years of experience offers vastly different value compared to a follower. For instance, an analyst predicting BTC will accumulate around $98,000 and then break through to $110,000 bases this judgment on comprehensive analysis of on-chain data, market sentiment, and historical patterns — far more convincing than mere numbers.

Third type: Multi-dimensional comprehensive signals

Signals that combine technical and fundamental analysis tend to be more reliable. For example, when a central bank’s rate cut policy signal coincides with a breakout at a key resistance level on a technical chart, this “resonance” significantly increases the success rate of the buy signal.

How can trading signals be classified by dimension?

By generation method:

• Automated system-generated (advantage: efficiency; disadvantage: lagging)
• Human analysis-generated (advantage: flexibility; disadvantage: subjectivity)

By analytical basis:

• Chart and indicator-driven (e.g., price breaks a resistance level or RSI enters oversold territory)
• Fundamental-driven (e.g., Heshrate (hashrate) rising indicates improved network health for BTC, possibly signaling price increase)
• Hybrid (most credible but hardest to obtain)

By trading cycle:

• Spot trading signals (suitable for long-term holders)
• Futures trading signals (for high-risk traders using leverage)
• Medium to long-term investment signals (targeting holding periods of months to years)
• Intraday short-term signals (aiming for quick entries and exits, e.g., ETH breaking $3,700 quickly targeting $3,900)

What kind of signals are worth referencing?

Don’t be fooled by claims of “high accuracy.” Truly high-quality signals should have four characteristics:

Verifiable historical performance of the signal source — not from some obscure account suddenly claiming “I have secret information.”

Complete logical chain attached to the signal — not just telling you to buy or sell, but clearly explaining why. For example, “because Heshrate hits a new high, on-chain balances are accumulating sufficiently, and the technical pattern has broken out,” rather than simply “BTC will rise.”

Clear risk management details — specific entry points, target levels, and stop-loss points are essential. For example: enter at $99,000, target $102,000, stop-loss at $98,500. If a signal lacks these, it’s gambling, not trading.

Clarity of timeliness — signals have a lifecycle. Advice written three weeks ago may already be outdated.

Real-world example: performance of signals in practice

For BTC futures traders, a high-quality signal might look like this: suggest building a position in batches around $99,000, with a target profit at $102,000, and setting a stop-loss at $98,500. This includes three elements — risk, reward, and clear execution standards.

A technical example is: ETH successfully breaking through $3,700, a long-term resistance level, with a reasonable target at $3,900. The advantage of such signals is strong visualization and easy understanding.

The dual nature of signal trading

Attractive advantages:

• Saves time on analysis (especially for working professionals)
• Allows learning market logic from experts
• If the signal source is good, it can significantly improve win rates

Deadly disadvantages:

• Not all signals are profitable (success rate statistically well below 100%)
• Beginners often mechanically copy signals without understanding the underlying logic
• When losses occur, responsibility is shifted rather than reflected upon, leading to a vicious cycle

The most important advice

Trading signals are tools, not compasses. Even professional traders who reference signals will conduct their own due diligence — checking macro environments, reviewing on-chain data, and assessing risk-reward ratios. They will never go all-in blindly.

The most common mistake for beginners is believing “signal equals truth.” In reality, the best traders use signals as sources of inspiration, then make independent judgments. Learning analysis, risk management, and emotional regulation are always more valuable than blindly chasing signals.

Trading is not just about finding the right entry point; it’s about surviving amid uncertainty. Stories of getting rich overnight from a single signal are tempting, but cases of bankruptcy due to over-reliance on signals are everywhere. Use signals wisely, or become enslaved by them — the choice always lies in your hands.