Hi,
As the others have said, you place (L)03 signals before (L)02 signals at the entrance of sidings or passing loops.
Now the reason why I am posting, Trainz signaling does not work 'prototypical' as you would expect, Trainz does not support it, I mentioned this during the Beta when the (L)03 signals were missing and I use them on my layouts.
You are finding that they are not working as they should due to Trainz not supporting it.