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What is Directional Movement Index (DMI)?
The Directional Movement Index (DMI) combines the average directional index (ADX), plus directional indicator (+DI), and minus directional indicator (-DI) into one graph that depicts the strength of positive or negative market forces. By plotting the directional indicators together with the ADX line, traders can get a sense of overall movement and determine a trend’s strength and direction. The DMI is a useful illustration of a key point: the ADX is most useful when combined with other indicators to determine whether it makes sense to trade with a trend. The ADX normally depicts three lines in order to give traders an accurate depiction of both the strength and direction of trends: the Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI), as well as the ADX lines. The DIs indicate trend direction, while the ADX depicts trend strength. Continue reading...
How to use the Aroon Indicators in trading?
The Aroon Indicators are a pair of momentum indicators – the Aroon Up value and Aroon Down value – named after the Sanskrit word for the first light of day. Each indicator represents a standardized value for the strength of the upward or downward pressure on a stock, which analysts can compare to determine if there is a trend emerging. Aroon looks at the latency between highs for certain rolling time periods, with 25 days being the standard time frame. Continue reading...
How to use the average directional index in trading?
Trend traders can use the Average Directional Index (ADX) technical indicator to spot and confirm the strength of a trend in a security, then combine the ADX reading with other indicators to determine whether it makes sense to trade with the trend. Click here to view the current news with the use of other Technical Indicators Technical Indicators are charting tools that appear as lines on charts, or as other kinds of graphical information, and serve as guidelines for buying and selling opportunities. Traders use technical indicators like the ADX to make predictions about future prices. They verify how well a specific indicator works for a particular security, often by calculating the odds of success under similar market conditions to guide their actions. Continue reading...
What is the commodity selection index?
The Commodity Selection Index (CSI) is a momentum indicator based on the Directional Movement Indicator and the Average True Range. It helps commodities traders find momentum in commodities futures that seem to be the best candidates to make the trader money in the short term, based on volatility and also the cost of holding the position. This momentum indicator uses multiple other indicators for price, volume, and volatility to find short term trends. It may identify situations where a price movement is likely to persist. This is certainly not a guarantee, and even if a trend is strong there are often retracements and unexpected reversals. Continue reading...
What is trend analysis?
Trend analysis is an attempt to explain market movements as general directional tendencies of various strength over various time frames. Trend analysis also works to predict future movements based on the probability of a trend continuing. The use of moving averages with support and resistance levels is the most commonly used methodology in trend analysis, and several trading strategies employ these tools in various ways. Trade volume, spreads, news, crossover points, and other market factors are also considered in the discipline. Continue reading...
What is Ease of Movement?
The Ease of Movement (EMV) indicator measures the degree to which prices can be moved by a lower volume of trading. It was developed by Richard Arms, inventor of the Arms Index, which also attempts to quantify the relationship between price movements and volume. High positive values indicate a present tendency for prices to increase on low volume, and larger negative values indicate that prices are slipping lower but with relatively low trade volume. Continue reading...
What is a market index?
Market indexes attempt to give an overall picture of the behavior of the market by tracking the performance of a representative sample of stocks. Different indexes have different focuses. The Russell 3000 samples more of the smaller companies than the S&P 500. Index mutual funds and ETFs track specific indexes but, as you’ll notice in their disclosures, it is impossible to invest directly in an index; they only follow the index by investing in as many of the companies as possible and minimizing lag as much as they can. Indexes give numerical values for the progressive fluctuations in the price action for specific sets of stocks. Continue reading...
What kind of hedge funds exist?
Hedge funds can employ many strategies and focus on virtually any kind of investing style or market. They also have the flexibility to change their strategy as they see fit. Morningstar and other services will group hedge funds into categories and provide benchmarks based on their average performances. As of 2016, there are over 12,000 hedge funds, and over half of those are required to report to the SEC. Continue reading...
What is the MSCI ACWI Index?
The MSCI ACWI is the “All Country World Index” - providing the broadest measure for global stocks. The MSCI ACWI tracks performance of stocks from all over the world - literally. It includes all markets and gives the broadest picture for how world stocks are performing. Developed markets account for some 75% of total global output, so the MSCI ACWI includes many countries that are not necessarily palatable contributors to world growth. Continue reading...
How to use the Accumulative Swing Index in trading?
The Accumulative Swing Index (ASI) is a trendline representing the running total of an oscillator called the Swing Index, first described by Webb Wilder in his book, “New Concepts in Technical Trading Systems.” The Swing Index itself compares the price data from the current period and the preceding period to quantify the positive or negative “swing,” which can be understood as a measure of directional velocity in a price. Continue reading...
How to use the Arms Index (TRIN) in trading
Richard Arms invented the analysis tool that bears his name in 1967. The Arms Index, a technical analysis indicator, is also called the TRIN (short for “Trading Index”) because it seeks to indicate overbought or oversold conditions by serving as an index of trading activity relative to price. The Arms index is calculated using readily available data from major indexes such as the S&P 500 or NASDAQ. The ratio of the number of advancing stocks (stocks whose prices are increasing) to the number of declining stocks (stocks whose prices are decreasing) is computed to give us the A/D Ratio, a market breadth indicator that is one way of viewing the daily breadth of a security. The Advance/Decline Ratio uses the same numbers as the Advance/Decline Line but presents them as a ratio instead. The AD Ratio is sometimes more useful than an AD Line, including in instances where comparing AD for different indexes which have different metrics; the ratio is the standardization with which comparisons can be made. Continue reading...
What are currency warrants?
Currency warrants are relatively new to the international Forex market. They function like puts or calls, depending on whether it is a purchase warrant or a warrant to sell, but they have longer durations, usually between one and five years until they expire. They can be purchased to take a position on a currency index or on a currency pair. Warrants were originally issued by corporations, giving investors the ability to redeem the warrant like a call option to purchase a stock at a strike price. Continue reading...
What is the Cost of Goods Sold?
The Cost of Goods Sold, or COGS, represents the overhead associated with the materials and labor, which were needed to produce the goods sold during a given period. The COGS calculation is only concerned with the production costs of a good, and does not take distribution and sales force costs into account. It will always include the direct materials cost and direct labor cost for each item, but indirect overhead associated with production, such facility costs, are distributed between Inventory and COGS, according to Generally Accepted Accounting Practices (GAAP). Continue reading...
What is index investing?
The main idea behind index investing is that markets are efficient, and, especially with the low fees of indexed funds, it can be a winning strategy. Index investing is a simple strategy of choosing the indices which reflect your investment beliefs and offer diversification, buying mutual funds or ETFs that track these indices, and holding them for a long period of time. The last 10 years have seen the propagation of index funds for any specific market, industry, country, commodity, etc. Continue reading...
What are index futures?
Index futures are futures contracts written on an index in which a large position can be held with a relatively small margin requirement. Index futures can be used for hedging or speculation. A "good faith" initial margin deposit (also called a performance bond) of a fraction of the contract size is all that is required to hold a substantial position, with a notional value worth significantly more than the amount invested. Continue reading...
Should I Use Double or Triple ETFs?
Double or triple ETFs can be very volatile investments, so an investor should be aware of the risks involved. By using future contracts to gain maximum leverage, ETFs known as Double or Triple ETFs offer magnified exposure to specific indices. Double and triple ETFs provide double or triple returns, but also incur double or triple losses. For this reason, double and triple ETFs are an extremely risky investment, Day traders and institutional investors make use of these products as short-term hedging strategies or speculative bets. Continue reading...
What is market breadth?
Market Breadth is a descriptor that is used in several market indicators such as the daily breadth, the A/D Line, the McClellan Oscillator, and Arms Index. Breadth is the relative difference in the amount of advancing stocks and declining stocks. Daily breadth is simply computed by subtracting one from the other, or creating a ratio in which one is divided by the other. Daily breadth is closely related, even interchangeable, with the Advance/Decline ratio. It can also refer to the difference between New Highs and New Lows, or Net New Highs. Continue reading...
What is an Active Index Fund?
Most index funds are known for using a completely passive strategy to track an index, but some take a more active approach. Some mutual funds track an index by passively using algorithms to buy the shares necessary to build a portfolio which closely replicates an index. Such a fund will have low turnover, will only rebalance slightly based on the market cap or other criteria set forth in the prospectus, and will basically ride out all of the ups and downs of the index in a blind faith for the efficient market hypothesis. Continue reading...
What is market momentum?
Market momentum is the tendency of a trend to continue in one direction or another. Various analysis methods and indicators seek to identify the strength of trends and to find points of possible reversals and retracements. A market has strong momentum when trading volume is up and confirms the direction of price movement in the market. Bullish or bearish market sentiment will influence the degree of momentum that is present. Continue reading...
What are Breakouts?
Breakouts are events where a stock or index suddenly changes the magnitude and direction of its trading range and a new level of support and resistance is defined. A stock or index might bump up against the same support or resistance level for some time, or experience a time of consolidation and horizontal movement before the price breaks the upper limit of resistance and a new high is attained. Sometimes prices consolidate or hit resistance levels as the markets and investors wait to see what some news will be about the condition of the economy and so forth. Once there is good news, investors might take it as the “go-ahead” sign, and the price will breakout from the previous range. Continue reading...