This article is designed to introduce the concept of market indicators and explain how to use them in your analysis. We will see how market indicators differ from technical indicators, and why they are just as important for making investment decisions. Most of this article covers specific market indicators so you can begin using them to your advantage right away.
Here is a list of some popular market indicators:
- Arms Index (TRIN) - A breadth indicator derived from the AD Ratio and AD Volume Ratio.
- Advance-Decline Line - A cumulative breadth indicator derived from Net Advances.
- Advance-Decline Volume Line - A cumulative breadth indicator derived from Net Advancing Volume.
- Bullish Percent Index - A breadth indicator derived from the percentage of stocks on PnF buy signals.
- The High-Low Index - A breadth indicator that shows new highs as a percentage of new highs plus new lows.
- McClellan Oscillator - A MACD type oscillator of Net Advances.
- McClellan Summation Index - A cumulative indicator based on the McClellan Oscillator.
- Net New Highs - A breadth indicator showing the difference between new highs and new lows. Percentage, cumulative and smoothed versions can be used.
- Percent Above Moving Average - A breadth oscillator that measure the percentage of stocks above a specific moving average.
- Record High Percent Index - A 10-day moving average of the High-Low Index, which is a breadth indicator.
- Volatility Index - A indicator of implied volatility designed to measure fear and complacency.
Like a technical indicator, a market indicator is a series of data points derived from a formula. In this case, however, the formula for market indicators is applied to the price data for multiple securities within the market, instead of just one security. Price data can come from open, high, low or close points for the securities, their volume, or both. This data is entered into the indicator formula and the data point is produced.
Unlike technical indicators, market indicators are not charted above or below the chart. Market indicators are what is being charted, and as such have their own ticker symbols. There are often many symbols that apply the market indicator formula simply to different markets. For example, the $BPSPX and $BPNDX track the Bullish Percent Index for the S&P 500 and the NASDAQ 100 respectively.