Welcome to the Advanced Stock Market Trading – Level 1. In this lesson, we’ll break down the core concept of market indicators, explore various types, and show you how they apply in real trading scenarios.
These indicators are a subset of technical indicators designed to predict the direction of major financial indexes or groups of securities. Unlike traditional technical indicators, which focus on one security, these indicators analyze multiple securities and often have dedicated chart tickers.
Both use statistical formulas to interpret data, but market indicators pull from broader datasets. They assess groups such as entire sectors or indexes, relying on data points like open, high, low, close, and volume from many stocks. Common examples include $BPSPX (S&P 500) and $BPNDX (NASDAQ 100).
Breadth Indicators: What is Market Breadth?
Market breadth indicators measure how many stocks participate in a trend. They help confirm whether an index’s move is backed by a large number of individual stocks. Key market breadth indicators include:
Popular Breadth Indicators
- Advance-Decline Line: Tracks the number of advancing vs. declining stocks (e.g., $NYAD, $NAAD).
- Net New 52-Week Highs: Measures the difference between new highs and lows.
- McClellan Oscillator: Smooths market breadth data for clarity.
- 10-Day MA of Up/Down Volume: Highlights volume trends based on price movement.
Sentiment Market Indicators
These market indicators gauge investor sentiment — bullish or bearish — based on non-price data. Examples include:
- Put/Call Ratio: Compares puts to calls to gauge sentiment.
- Volatility Index (VIX): Measures market expectation of volatility.
- AAII Sentiment Survey: Poll-based measure of investor outlook.
Secondary Indicators for Deeper Insights
Use these market indicators to confirm or challenge primary signals:
- Overbought/Oversold Oscillator: Based on short-term price movements.
- 10-Day MA of New Highs/Lows: Indicates trend shifts when lines cross.
- Short Interest Ratio: Signals bearish sentiment when high.
- Bulls vs Bears Ratio: Contrarian indicator using professional sentiment.
Economic Calendar and Psychological Indicators
Use the economic calendar to track market-moving events. Watch for:
- Earnings reports
- Interest rate decisions
- Inflation data
Psychological indicators include:
- Stock splits
- New issues %
- P/E ratios
- Dividend yield trends
Global Market Indicators
Understanding global indexes improves macro analysis:
- FTSE 100 (UK): Includes BP, BHP, GSK
- DAX 30 (Germany): Siemens, BASF, Bayer
- CAC 40 (France): Sanofi, ArcelorMittal
- Eurostoxx 50: Covers Europe’s 50 top companies
You can invest in these through ETFs or ADRs.
Summary
Market indicators are vital for evaluating overall market trends and investor sentiment. Tools like market breadth indicators and sentiment gauges help confirm price moves and avoid false signals. For a sharper trading edge, start integrating these tools into your analysis.Learn, apply, and test these concepts risk-free with a funded challenge from PROP365. Try PROP365 today and start trading like a pro.
