Technical Analysis terms explanation - Share Market

In this blog we have decided to explain our readers some basic technical analysis terms used daily in the market.

1)52-WEEK RANGE

 

The lowest and the highest prices at which a stock / share / scrip has been traded in the last 52 weeks. The 52-week range is provided in a stock's quote summary along with data such as today's change and year-to-date change. Stocks that have been trading for less than a year will still show a 52-week range even though data for the full range is not available. Technical analysts associate a stock's current traded price to its 52-week range to get a comprehensive sense of how the stock is performing, as well as how much the stock's value has varied. This information may indicate the probable future range of the stock and how volatile the stocks are. The stock quote explains the 52-week range for S&P 500 index.

2) ADVANCE/DECLINE INDEX

Advance/decline index is a technical trend analysis tool that represents the total difference between the number of advancing and declining stock prices. This index is considered one of the best indicators of market movements as a whole.It is a powerful stock trading signal which indicates the trends of the market. It explains the difference between the number of stocks advancing and declining in a stock index in terms of trading prices.

The Advance/Decline Index is calculated by accumulating the difference between the number of advancing issues and the number of declining issues over time.

In general, increasing values of the advance/decline can be used to confirm the chances that an upward/bullish trend will continue. If the market is up but there are more declining issues than advancing ones, it's usually a sign that the market is losing its breadth and may be getting ready to change direction.

Application of Advance/Decline Index

When more stocks are advancing than declining, the Advance Decline Index moves up indicating stock market strength.  Conversely, when more stocks are declining than advancing, the Advance Decline Index trends down, indicating stock market weakness.

Another way to use the Advance Decline Index is to look for a divergence between the stock market index and the Advance Decline Index.  Often, an end to a bull market occurs when the Advance Decline Index trends sideways or down while the stock market index is still making new highs as shown in the Yahoo Advance Decline table below. 

Source : https://www.globalmarketastro.com/blog/technical-analysis-terms-explanation-share-market/

How to Calculate Simple Moving Averages ?

Moving average is a preliminary technical indicator used by the traders for trend analysis. There are various types if moving averages, but their core purpose remains the same: to guide technical traders track the market trends of financial assets by smoothing out the day-to-day price fluctuations.


Amongst the most common technical indicators, moving averages are used to scale the direction of the current trend. Every type of moving average is a mathematical result that is calculated by averaging a number of past data points. Once determined, the resulting average is then plotted onto a chart in order to allow traders to look at smoothed data rather than focusing on the day-to-day price fluctuations that are inherent in all financial markets. 

Simple Moving Average 

Simple Moving Average (SMA), is calculated by taking the arithmetic mean of a given set of data values. For example, to calculate a basic 10-day moving average you would add up the closing prices from the past 10 days and then divide the result by 10. For a 50-day average, the same type of calculation would be made, but it would include the prices over the past 50 days and divide its sum by 50.

The reason why it is called a "moving" average and not just a regular arithmetic mean is because the new  latest values are taken in to account, the oldest data points must be dropped from the set and new data points must come in to replace them. The data set is constantly "moving" to account for new data as it becomes available.

Moving Average Charts 

Once the values of the Moving Average have been calculated, they are plotted on a chart and then connected to create a moving average line. These curving lines are common on the charts of technical traders, but how they are used can vary drastically. The higher the number of closing price taken into account the moving average curve gets smoother.

The simple moving average is very popular among traders as a powerful stock market trading signal, but like all technical indicators, it does have its critics. Many individuals argue that the effectiveness of the SMA is narrow since each point in the data series is weighted the equal, regardless of where it occurs in the sequence. 

Critics argue that the most recent data is more significant than the older data and should have a greater impact on the final result. In response to this criticism, traders started to give more weight to recent data, which has since led to the development of various types of new averages, the most popular of which is the Exponential Moving Average (EMA). 

Source : www.globalmarketastro.com/blog/how-to-calculate-simple-moving-averages/