Traders use stock market indicators to help evaluate stock performance and predict the future success of leading stocks. Most stock market indicators measure market breadth, or the number of companies that are growing compared to the number that are in decline. For maximum benefit, always consider all stock market indicators to get the best idea of the market's curent performance and future potential.
The advance-decline line is a general measurement of the stock market's direction. Markets measure the number of stocks that advanced by the end of the day, as well as the number of stocks that declined. The result will be either positive, which indicates a higher number of advancing stocks, or negative, which indicates that more stocks are declining than are advancing. According to Decision Point, the advance-decline line is the most common and easiest to understand stock market indicator.
The McClellan Oscillator combines the Advance/Decline Line with other components of market breadth. To calculate the McClellan Oscillator, subtract the 39-day exponential moving average (EPA) of net advances from the 19-day exponential moving average of net advances. The McClellan Oscillator is a good indicator of market movement, since it utilizes the EPA, which places added emphasis on recent stock performance. It is most accurate for short and intermediate trading time frames, as noted by My SMP.
The Trader's Index (TRIN) stock market indicator divides the advances-to-declines ratio by the volume of advances to declines. According to Investopedia, a TRIN that is less than one indicates a bullish market, which means that there is reason to believe that the market will improve in the future. TRIN also accounts for the "manic-depressive" state of the stock market, and gives traders a way to see the trends and trend reversals that are so common in the trading world.
New High-New Low
The New High-New Low index measures the number of stocks that have hit new highs or new lows within the last 52 weeks. According to Nasdaq, some investors use the New High-New Low index to determine which companies to purchase, and buy stock in those that have hit new highs. A New High-New Low index that is higher than 50 indicates a bullish market, since this means that new highs are more common than new lows. An index lower than 50 indicates a bearish market.
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