Analysts uses various sets of tools and indicators for technical analysis of stock market. These tools are primarily market Indicators used by traders to predict the price movement of all major financial indices. The movement of these indicators and oscillators forms the basis of analysing trends, and spot signals for specific buy or sell. Most of these indicators are designed using market breadth, derived after analysing companies which created new highs relative to the ones that created new lows.

Following are few major technical analysis tools/indicators used in the modern financial world to predict price movement –

  1. Accumulation /distribution line or( A/D line): The A/D line indicator considers the closing price of the security as well as trading range for the period. This indicator is primarily used for determining the money flow of a security. The up trending line indicates increment in the buying pressure whereas down trending line signifies increment in the selling pressure of the security.
  2. Average Directional Index or (ADX): Unlike other indicators, ADX isn’t used for predicting the trajectory of the trend rather it is used to measure the momentum and strength of the current trend . An ADX value above 40 signifies a lot of directional strength implying that the trend is going strong for the time being whereas below 40 signifies that it is about to exhaust or a reversal is likely to occur. An ADX value below 20 means that the trend is weak or almost over.
  3. Aroon Indicator: Aroon indicator is used to identify the emerging trend and measure the strength of that trend. It has various applications including the prediction of onset of a new trend. It ranges between 0 and 100 where 0 indicates a weak trend and 100 indicates a strong trend. When the Aroon-up line is above 70 as well as above the Aroon-down line, the security is considered to be up trending. When the Aroon-down line is above 70 as well as above the Aroon-up line, the security is considered to be down trending.
  4. Relative Strength Index or (RSI):   RSI helps indicate whether the security has meet with more buying or selling pressure by comparing the strength of its uptrend movements relative to its downtrend movements. The range for RSI varies from 0-100 where 100 being the highest overbought condition whereas 0 being the highest oversold condition. It is used to identify the over-buying or over-selling of a security.
  5. Stochastic Oscillator: It is a momentum indicator that utilises support and resistance levels. Stochastic oscillator helps in predicting pricing turning points. It ranges from 0-100 where 80 refers to overbought condition while 20 is oversold. The price nears highs during an upward trend while it moves towards lows during downward trends.

There are numerous indicator with respect to financial world and the above mentioned are just the most commonly used during technical analysis. There are numerous more tools which can determine the assets current as well as predict the future momentum.

Thoughts@Stockal
At Stockal, we love to watch how markets respond to unique events and how our users (investors - you and old) can make the best use of circumstances to make smart investments. In Thoughts@Stockal, we do deep and broad analysis of such impactful trends and events.

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