🔔 What Chart Signals Actually Mean

~8 min read · For reference, not a prediction

First, one thing to know: signals are not predictions

A chart signal is simply a name given to a 'pattern' that tends to repeat in the movement of price and volume. For example, when a signal called 'RSI oversold' appears, the textbook usually explains it as 'it has fallen too far, so it might bounce back soon.'

But in reality, things very often don't go the way the textbook says. You jump in thinking 'it's oversold, so it'll go up,' and then it keeps falling — that happens all the time.

In other words, a signal's label (its textbook direction) and the actual outcome frequently diverge. That's why it's better to think of a signal not as a 'fortune-teller that gets it right,' but as a 'reference chart for sorting things out.'

Terms first: candles and win rate

Before we dive into the signal explanations, let's just clarify two words that will come up often.

• Candle — a single bar that draws the price movement over a fixed period (e.g., one hour, one day). If the closing price is higher than the opening price, it's usually shown in green (an up candle); if lower, in red (a down candle). '20 candles' means 20 of these bars.
• Win rate — 'out of the many past cases where the same signal appeared, the percentage in which the price afterward moved in the signal's direction.' A 60% win rate is just a past record meaning 'in 6 out of the past 10 times, it went that way' — it does not mean it will be right 60% of the time going forward.

Oscillator signals (tools that measure overbought / oversold)

An oscillator is an indicator that tells you, on a scale like 0 to 100, whether the price has tilted 'too far up or down within its recent range.'

Textbook-wise, 'fell too far (oversold)' makes you expect a bounce, and 'rose too much (overbought)' makes you expect a pullback. But in a market with a strong trend, prices can keep rising while overbought, or keep falling while oversold.

• RSI oversold / overbought — RSI is an indicator that measures the balance of recent upward and downward force on a 0–100 scale. Generally, below 30 is oversold (textbook: expect a bounce) and above 70 is overbought (textbook: expect a pullback). But when the trend is strong, it can stay below 30 or above 70 for a long time.
• RSI extreme oversold / extreme overbought — the same RSI, but pushed to a more extreme (e.g., below 20 / above 80). It means the tilt is stronger, but for that very reason the price may be racing in one direction, so you need to be even more careful.
• Stochastic oversold / overbought — an indicator that shows where the recent price sits within the 'recent high-to-low range.' Generally below 20 is oversold and above 80 is overbought. It's similar to RSI but more sensitive, so it flickers more often.
• Williams %R oversold / overbought — a cousin of the Stochastic, it looks at how far the price has come down relative to the recent high. Near the bottom it reads as oversold; near the top, as overbought.
• CCI oversold / overbought — CCI is an indicator that measures 'how far the price has strayed from its average.' Conventionally, deeply negative is read as oversold and deeply positive as overbought.

Trend signals (tools that watch whether the direction is turning)

These signals are tools that try to catch 'whether the price's larger flow (the trend) is turning up or turning down.' Usually the moment two lines cross is taken as the signal.

When the trend is clear they tend to work reasonably well, but when the price moves sideways you often get false signals (whipsaws) that repeatedly head-fake one way and then the other.

• MACD golden cross / death cross — MACD looks at the strength and direction of a trend through the difference between a short-term and a long-term average. A golden cross (crossing above the signal line) is read textbook-wise as a turn upward, and a death cross (crossing below) as a turn downward.
• EMA golden cross / death cross — an EMA is a moving average that puts more weight on recent prices. When the short-term line breaks above the long-term line it's a golden cross (an upward turn), and when it breaks below it's a death cross (a downward turn) — that's the convention, and it ties in with what people often call a 'bullish/bearish alignment.'

Volatility / breakout signals (bands and new highs / new lows)

These signals watch 'whether the price has broken out of its usual range' and 'whether volatility has shrunk and is about to burst.'

A breakout can be the start of a big move, or it can be a brief head-fake (a false breakout), so it's a signal whose interpretation is especially divided.

• Bollinger Band lower touch / upper touch — Bollinger Bands draw the 'usual range of fluctuation' as a band around the price. Touching the lower band is read textbook-wise as expecting a bounce, and touching the upper band as expecting a pullback — but in a strongly trending market the price can keep riding the band.
• Bollinger Band squeeze upward / downward — a narrowing band width (a squeeze) means volatility has shrunk and 'energy has built up.' It's seen as something that may soon burst hard in one direction: bursting up is an upward signal, bursting down a downward signal. That said, you can't know in advance which way it will burst.
• 20-candle new high / new low — a freshly set highest/lowest price among the last 20 candles. A new high is conventionally read as an upward breakout and a new low as a downward breakout, but a 'false breakout' that snaps back right after the break is also common.

Candle / volume signals (reading by candle shape and volume)

Candle signals try to read market psychology from the 'shape' of one or two candles. Volume signals look at 'how many people bought and sold.'

They're intuitive and easy to spot, but remember that it's hard to be certain about direction from the shape of a single candle alone.

• Volume spike (up candle / down candle) — a state where volume has shot up far beyond usual. A spike on an up candle (price rising) is conventionally seen as strong buying pressure, and a spike on a down candle (price falling) as strong selling pressure. That said, sometimes a spike is the 'last flare of a trend.'
• Bullish engulfing / bearish bearish engulfing — a shape where the next candle completely 'wraps around' the previous one. When a large up candle covers the preceding down candle it's a bullish engulfing; when a large down candle covers the preceding up candle it's a bearish engulfing.
• Hammer / shooting star — a hammer is a candle with a long lower tail, conventionally read as 'buying pressure held it up at the bottom (expect a bounce),' while a shooting star is a candle with a long upper tail, read as 'selling pressure pushed it down at the top (expect a drop).'
• 3-candle / 5-candle consecutive up / down candles — when candles are the same color in a row, one direction is seen as having strong force. A run of up candles reads as a bullish mood and a run of down candles as a bearish mood, but the longer the streak, the closer a 'pullback (a correction in the opposite direction)' may be.

Wrap-up: the arrow's color is not a 'prediction' but a 'past report card'

• Green ↑ = it means that when this signal appeared in the past, 'rises' were more common afterward.
• Red ↓ = it means that when this signal appeared in the past, 'falls' were more common afterward.
• The arrow's direction is not a prediction that 'it will go this way next' — it's just a report card saying 'in the past, this side happened more often.'

So even for the same RSI oversold, the textbook says bounce (↑), but on Baro the arrow may come out red (↓) depending on the past win rate. The fact that the label and the actual outcome differ is exactly the core of what Baro is trying to show you.