By Aniket Bose. Edited by Arjun Chandrasekar.
Market indicators are quantitative and are used to explore stocks or other financial index data in an attempt to display moves in the market. Market indicators are also a subset of industrial indicators and are normally composed of ratios and formulas. They assist investors in the investment and trading decisions of their assets. There are three main types of stock market indicators: Market Breadth, Market Sentiment, and Advance-Decline. Let’s go over each one in detail!
Market breadth indicators’ main job is to analyze the number of stocks progressing compared to those that are beginning to show a decline on a stock exchange, such as the New York Stock Exchange (NYSE). Market breadth indicators that are positive transpire when more stocks in the stock market are progressing more than stocks that are declining. This indicates that the bull market controls the current stock market and assures investors of a price increase in the stock market. At the same time, an unproportionate amount of declining securities are used to determine that the stock market is going through a bear market and proves to investors that there will be a price decrease in the stock market.
Market sentiment suggests the overall approach of investors particularly toward a financial market, like the NYSE. It is the feeling of a market where the activity and changes in the price of stocks in a financial market as they are traded throughout the stock market. Simply put, when the prices of stocks in the stock market are rising then it is known as a bull market sentiment and when the prices start to decline then it is a bear market sentiment. There are also technical indicators that assist investors in measuring the market sentiment of the stock market. Market sentiment is also known as “investor sentiment” and it is not entirely based on fundamentals regarding the stock market. Market sentiment is vital for investors that are contrarian because they prefer to trade in the opposite manner of other investors. For instance, if every investor is buying stocks of Apple, then a contrarian investor would sell their stocks of Apple.
The advance/decline (A/D) is one of the terminal indicators that plots the difference between the amount of progressing and declining stocks daily. The indicator increases with quantity, typically meaning more stocks in the market, with positive numbers being added to the previous number, or whether negative numbers are being subtracted from the prior number. The A/D is also used by investors and analysts to show market sentiment since it tells analysts and investors whether the majority of stocks are rising in their stock price or showing signs of declining. It is also used to validate price trends over the long term which is beneficial for long-term investors. It can also warn long-term investors of reversals when there could be a chance of alteration happening.
The three main types of stock market indicators consist of market breadth, market sentiment, and advance-decline. These market indicators are also considered by some as a form of technical indicators, however, there are some subtle differences between them. Stock market indicators are calculated in a very similar way as technical indicators, where it applies statistical methods to an assortment of data points for deriving ratios or any formulas. If you found this article informative or fun to read, consider liking and leaving a comment!