Indicator helps to determine the direction of the price

Indicator(s) can help you determine the movement of the price, no matter what type of financial vehicle you use for trading. Some of the best known are market tools to judge the overall movement of stock prices.

IndicatorThe analysis of the market breadth is one of the most common, which entails comparing the number of companies that have reached new highs with those that have sunk to new lows. Advance/decline index, Transportation Index, and McClellan Oscillator are three others often used to predict the financial health of the overall stock market.

Overall market prices for the stock market are also gleaned by using the S&P 500 moving average. This technique considers the closing price for the S&P 500 index for a specific period. It predicts a bull or bear market, with the charging bull market occurring when prices are moving above the average and a bear or sluggish market when they move below the average.

Unemployment indicator

The number of unemployed or jobless claims is also frequently used. In the last recession, most people saw the flaw of using this number. People were often unemployed so long, they no longer could claim unemployment benefits, which took them out of the number of unemployed, but not because they had a job. They were still as unemployed as they had been in the previous quarter.  As with employment statistics, the Consumer Confidence Index is also an indicator of a good or bad economy. 

Technical information

When selecting a specific stock, some of the indicators used are the price-to-earnings ratio and those derived from price and volume. These technical numbers are graphed to create a visual pattern that you can use to predict the future price and popularity of stock based on its past performance. Many savvy stock traders use a more technical information to help them make more advanced trades such as shorting a stock---selling short. You can also use many of these to predict the prices of options.

Measuring the trends

Forex traders may use such measurement as trends, via a trend following tool, which can help them decide whether to take a short or long position in a particular currency.  Once a trend is found, a tool program to chart and confirm the trend is necessary. This could be the moving average convergence divergence---MACD.  Deciding to trade may require other measuring numbers, such as whether the market is overbought or oversold.  The RSI---relative strength index can help determine this. 

Learning and knowing

Learning to forecast market movements and knowing when to “hold ‘em” and when to walk away or run is best accomplished by using several different indicators in combination. Many people start out by learning how to use their tools by forecasting “fantasy trades.”  Once they feel comfortable using such tools and technical programs, they start trading in the real market.  After all, no carpenter started without first buying tools and learning how to use them.  The same is true for trading.  There are hundreds of different instrument for measuring, some better than others. When you start investing, you need to invest your time first into learning how to use these tools and what they mean when it comes to trading your investment vehicle. 


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