What is the difference between setups and signals?

<p id="isPasted">In the context of trading, a setup is a potential trading opportunity based on a combination of market conditions, while a signal is a specific event or indicator that triggers a trade within that setup. Think of a setup as the overall context, and a signal as the specific "go" command within that context.&nbsp;</p><p>Setups:</p><p>Represent a broader market context or potential trading opportunity.</p><p>Involve a combination of factors like trend, volume, volatility, and technical patterns.</p><p>A setup is like identifying a good location for a picnic (e.g., a sunny spot with a nice view). It's the overall situation that looks promising.</p><p>Signals:</p><p>Are specific, actionable events that trigger a trade within a pre-existing setup.</p><p>Examples include a breakout above resistance, a price crossing a moving average, or a candlestick pattern indicating a reversal.</p><p>A signal is like the specific moment you decide to spread out your blanket and unpack the food (you've already chosen the location, the signal is the actual action of starting the picnic).</p><p><br></p>

<p id="isPasted">In technical analysis, a setup is a broad market condition or pattern that creates a potential trading opportunity, while a signal is a specific, time-sensitive trigger that confirms the setup and indicates when to act on the trade. A signal is like an alarm that says the conditions for a setup are aligning and it's time to enter a trade, whereas the setup itself is the arrangement of those conditions.&nbsp;</p><p>Setup</p><p>What it is: A pre-existing market condition or arrangement of elements that suggests a profitable trade could develop.&nbsp;</p><p>Characteristics:</p><p>Represents an ongoing situation, like a price uptrend with a pullback or consolidation near all-time highs.&nbsp;</p><p>Involves the convergence of multiple factors, such as price, volume, and technical patterns.&nbsp;</p><p>Examples include a 3-day setup where a specific pattern forms over three trading days, or a setup involving resistance zones and an uptrend.&nbsp;</p><p>Purpose: To identify potential opportunities and the general framework for a trade.&nbsp;</p><p>Signal</p><p>What it is: A distinct, more specific event or indicator that confirms a setup and signals that it is time to act.&nbsp;</p><p>Characteristics:</p><p>A time-varying occurrence that conveys information.&nbsp;</p><p>Acts as a more immediate "go" or "no-go" for a trade.&nbsp;</p><p>Examples include a breakout from a price pattern, a momentum reversal, or a specific candlestick pattern.&nbsp;</p><p>Purpose: To trigger an entry or exit from a trade when a setup is confirmed.&nbsp;</p>