What are market indicators?

Last Updated: 24 Jan 2025

Market Indicators

Stock market indicators are essentially quantitative tools applied by traders and investors to interpret financial data. The broad intent is to forecast stock market movements and make profits out of the same. Market indicators are essentially quantitative and are a sub-set of technical indicators like ROC or stochastics. Stock market indicators are more a measure of market sentiments and include some key measures like the market breadth, market sentiment, on balance volume, moving averages, etc. Just to give you an example of Stock market indicators, they include specifics like advance/decline ratio, the 52-week high/low ratio, the upper/lower circuit ratio, delivery ratio, etc. The complete list of specific Stock market indicators can go on but the idea is, that is a broad concept.

Types of Market Indicators

There are a variety of stock market indicators available in the market and we will just focus on four of them. We start with the market breadth and then cover 3 more interesting stock market indicators.

Market Breadth

Among the various Stock market indicators, the market breadth compares data of several stocks that show a similar price movement. For example, the advance/decline ratio is a Stock market indicator that measures the number of stocks advancing in a day to the number of stocks declining. Apart from the absolute numbers, the trend over time helps capture shifts in market trends from bullish to bearish and vice versa. It enables traders to ascertain where the trend is headed shortly. The number of companies that reach new highs will be compared with the number of stocks that reach new lows within a given trading period. These are all share market indicators that capture the breadth of the market.

Who exactly uses these market breadth indicators? This is useful for trend traders who primarily seek to profit by betting on macros or broad trends. Trends are considered to be among the best stock market indicators as they are relatively low on risk. If you are wondering what are market indicators capture macro trends best, it is about breadth trends in the market.

Market Sentiment

Share market indicators are as much about soft sentiments as they are about hard trends. Market sentiment indicators help to compare and contrast the price of a security with its volume of trade. For example, any price move is said to have conviction if it is backed by adequate volumes. This helps you to determine if investors’ mindsets are bullish or bearish. These are subjective and hence use your discretion. A classic example is a put call ratio which calculates the number of call options as opposed to the number of put options. The put/call ratio can be for volumes or open interest.

Moving Averages

In any of the Stock market indicators, you have to put up with the noise because the price has noise. How then do you rely on these Stock market indicators? The answer is to remove the noise and that can be done by filtering out irrelevant data to get a smooth graph of price. Better known as moving averages, these Stock market indicators are expressed as a single flowing line representing the average price of a stock over a period. It helps to smooth out the vagaries in the price chart.

An important decision for using moving averages as Stock market indicators is the period to be chosen. The chosen period is entirely at the discretion of the trader, depending upon their priorities. Here is a guiding principle, If you are looking for long-term Stock market indicators, then focus on 50, 100, or 200 days moving averages. But, if you are focused on short-term Stock market indicators, then focus on weekly moving averages.

How do you interpret moving averages as Stock market indicators? Remember that moving averages do not predict price movements. They simply show the real price movements that have already occurred and the underlying trend in these price movements by removing all the noise and short-term fluctuations.

On-Balance-Volume (OBV)

The volume of trade is an important Stock market indicator. The on-balance volume or OBV collates a lot of volume-related data into a single flowing line. As a Stock market indicator, you can look at OBV being for volumes as moving averages are to stock prices. OBV, as a Stock market indicator, does not predict price movements but merely confirms the underlying trends. A rising OBV with a rising moving average line is Stock market indicators that show bullishness. Similarly, rising OBV with a falling moving average line is a Stock market indicator that hints at bearishness. Normally, when the price moving average line and OBV move in the opposite direction, they are expected to converge.

Market Indicators vs. Technical Indicators

Market indicators are metrics used to assess the overall direction and health of the market. They include measures like market breadth, volatility indexes, and sentiment indicators. These indicators provide a broader view of market trends and investor sentiment.

In contrast, technical indicators focus on analyzing individual securities through historical price and volume data. Common technical indicators include moving averages, Relative Strength Index (RSI), and MACD (Moving Average Convergence Divergence). Both types of indicators are essential for making informed trading and investment decisions.

Frequently Asked Questions

Are indicators important for futures trading?

Futures trading is based largely on key market indicators like put call ratio of volumes, put call ratio of open interest, implied volatility, OI shifts etc. Futures data adds a new dimension to market indicators and form useful inputs in trading futures.

What is market capitalization

When you multiple the number of outstanding shares of the company with the market price, it gives you the market capitalization. It is considered the best barometer of value creation by a company as it has been put to the market test.

What are the commonly used market breadth indicators?

Commonly used market breadth indicators include the Advance-Decline Line, Up Volume-Down Volume, McClellan Oscillator, and New Highs-New Lows. These indicators provide insights into market trends.

Which VIX must I refer to analyse volatility in the Indian stock market?

To analyse volatility in the Indian stock market, refer to the India VIX, a popular market indicator that measures the market’s expectation of near-term volatility. It’s essential for understanding the market’s fear or uncertainty.

Which moving average should I use to analyse the Indian stock market?

For analysing the Indian stock market, the 50-day moving average is commonly used. This market indicator helps identify trends and potential buy or sell signals by smoothing out short-term fluctuations in stock prices.