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5 Must-Know Market Indicators

Using stock market indicators, investors can analyze current stock gains and losses and predict how the stock will perform in the short-term or long-term. It can help them decide to buy or sell the stock. If you want to find out more about navigating the stock market, here are some must-know stock market indicators that you should learn:

Relative Strength Index (RSI)

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As a momentum indicator, the relative strength index (RSI) oscillates between 0 and 100 and indicates the recent stock price gains and losses. If the RSI rises above its upper line of 70, it means the stock is overbought. Meanwhile, you can call the stock oversold if the RSI drops under its lower line of 30. You can get a reliable indication of the recent trending strength of the stock by monitoring the RSI level.

For calculating the RSI, divide the total number of gains or losses by the total number of look-back days. To find out if the RSI is diverging from the current price trend, make use of the RSI divergence indicator.

Average Directional Index (ADX)

The average directional index (ADX) is useful for measuring the strength of the price movement. Shown as a single line with 0 to 100 values, the ADX indicates a strengthening trend when its value moves above 25. It denotes a weakening trend when the ADX starts to go under 20.

Bollinger Bands

Created in the 1980s by John Bollinger, the Bollinger Bands consist of three bands that are useful in indicating market trends. The central one shows the simple moving average of prices over a specific period. The upper and lower bands, meanwhile, track the daily stock market prices. You can see the high prices on the upper band and the lower prices on the lower one. You can get an idea of the volatility of the markets by the expanding or contracting widths of these band indicators.

Fibonacci Retracements

The 13th-century mathematician Leonardo Fibonacci came up with the key numbers that form the basis of the technical trading tool known as Fibonacci retracement. It is useful for highlighting high and low stock price points and predicting the support and resistance levels. To get these levels, you will need to measure the vertical distance between the price points and divide it by the key Fibonacci ratios of 23.6%, 38.2%, 61.8%, and 100%. That will give you an idea about how much the market will retrace before it can resume its market trend.

Moving Averages

With moving averages, you use the latest available data to calculate the average price of the stocks under study. If the stock trades for higher than its average price, you can take it as a signal to buy the stock. However, if it sells below its average price, it probably won’t be a good idea to hold on to the stock.

The best thing you can do is an in-depth study of these market indicators to improve your understanding of the stock market and your ability to spot market trends that will prove gainful.

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