Market indicators are quantitative tools for the analysis of market information, which may hint or confirm that a trend or reversal is about to happen (leading indicator) or has begun (lagging indicator). Indicators are technical analysis algorithms which give investors signals that may be used as the guidelines for trading. Indicators might be called oscillators or have various other proper names, since some of them are quite well-known, but there are general conventions or instructions for how to use an indicator, how it can be tweaked to suit the scope of your analysis, and what is considered a trade signal. Continue reading...
A market maker is a broker-dealer firm or a registered individual that will hold a certain number of shares of a security in order to facilitate trading. There could be as many as 50 market makers for one particular security, and they compete for customer order flows by displaying buy and sell quotations for a guaranteed number of shares. The market maker spread refers to the difference between the amount a market maker is willing to pay for a security and the amount that the other party is willing to sell it. Continue reading...
Technical Indicators are charting tools that appear as lines on charts, or as other kinds of graphical information, which serve as guidelines for buying and selling opportunities. They are based on mathematical formulas, and may be called oscillators, trading bands, and signal lines, among other things. Technical analysts use information about price, volume, standard deviation, and other metrics to construct systems for trading using mathematical formulas which can be translated into useful charting tools. The systems can bring discipline to a trader’s strategy by providing clearly defined circumstances in which a trader has reason to buy, sell, hold, and so on. Continue reading...
Leading indicators are economic or price data which have some degree of correlation with a movement in the market or a stock price. Leading indicators tend to happen before the market or price movement occurs. Traders and economists use leading indicators frequently to prepare for what’s next; they are based on theory as well as empirical historical evidence but like all indicators, they do not have a 100% accuracy rate – past performance does not guarantee future results. Continue reading...
A momentum indicator allows for a quick comparison of a security’s current price relative to its past prices using a flexible time period, allowing traders to decide the parameters. The formula to calculate momentum is M = V – Vx (where V is the current price and Vx is the closing price from x number of days ago). A current price in excess of past price is a positive momentum indicator; a lower current price represents negative momentum. Continue reading...
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...
ETFs are very popular and useful investment vehicles that offer affordable diversification and professional portfolio management. An ETF is a basket of securities that is designed to ‘mimic’ the performance of an index, sector, or category of securities. For example, the ETF with ticker SPY is designed to track the performance of the S&P 500, and the company that creates the ETF (in this case Barclays iShares) builds the ETF simply by purchasing the 500 stocks in the S&P 500. Investors can purchase shares of the ETF as a means of gaining instant access to all 500 stocks in the S&P 500, thus tracking its performance. Continue reading...
The Hang Seng Index (HSI) is comprised of the 50 biggest stocks traded on the Hong Kong Stock Exchange. The Hong Kong stock market is much different than that of China, in that foreign investors are allowed access and the index is calculated on a free floating cap-weighted basis. It tracks the 50 biggest companies on the Hong Kong Stock Exchange, and is a better barometer for measuring overall performance of companies from the region. Continue reading...
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...
The EURO STOXX 50 is an index designed to give a broad representation of stock performance across the euro zone. The EURO STOXX 50 is an index comprised of the 50 largest and most liquid stocks in the euro zone, and is designed to “provide a blue-chip representation of Super-sector leaders in the Eurozone.” The performance of the EURO STOXX 50 is generally a good indicator for how Europe’s economy is doing. Continue reading...
The DAX is an index tracking performance of German stocks. The DAX is an index that tracks the 30 largest capitalization stocks that trade on the Frankfurt Stock Exchange in Germany. The index is capitalization weighted, but since it is so narrow it is more comparable to the Dow Jones than the S&P 500. It does not necessarily give a thorough indication of how the German economy is performing. What is the CAC 40 Index? What is the EURO STOXX 50? Continue reading...
The Russell 2000 index is comprised of the 2,000 smallest companies in the U.S. If you’re looking for a small cap domestic benchmark, this is a good one. Companies included in this index are reevaluated annually to make sure they can still be considered small cap companies. Since the Russell 1000 index represents 90% of the market, the Russell 2000 index represents about 10% of the market (if you are wondering whether or not there is a Russell 3000 index, the answer is yes — it is a combination of the Russell 1000 and Russell 2000 indices). Continue reading...
The Russell 1000 is considered the optimal benchmark for large cap U.S. stocks. The Russell 1000 comprises over 90% of the total market capitalization of U.S. stocks, and is the go-to benchmark for large cap U.S. stocks. Like the S&P 500, the Russell 1000 is cap-weighted and will give investors a good idea of how the largest U.S. companies are performing. What is the Russell 2000 Index? What Should I Compare the Performance of My Portfolio With? Continue reading...
The Dow Jones Industrial Average (DJIA) is an index comprised of 30 'significant' U.S. stocks, typically the biggest and most frequently traded. The Dow Jones Industrial Average was created in 1896 by Charles Dow, as a way to track the general trend of U.S. stocks. The index is price-weighted versus cap-weighted, meaning that if a company splits 2 for 1 its contribution to the index will drop by half (even though the company's value did not change). Continue reading...
The MSCI World is perhaps the most well regarded index for global stocks. The MSCI World Index is a global cap-weighted index that serves as a good barometer for stock and economic performance of the world as a whole. If you are a global investor, the MSCI World makes for a very useful benchmark for performance. The index is maintained by Morgan Stanley, and has over 1,600 stocks listed in it from all developed markets in the world. It does not include emerging markets or China. Continue reading...
The “Shanghai” is an index measuring all shares that are traded on the Shanghai Stock Exchange (China). The Shanghai Index - also referred to as the SSE Composite Index or simply “the Shanghai” - is an index measuring price changes of all A and B shares traded on China’s Shanghai Exchange. Many foreign investors have only limited access to trading shares on China’s main exchange, which makes price discrepancies likely. Continue reading...
The “Nikkei” is the most referenced index for measuring Japanese stocks. The Nikkei 225 - often just referred to as “the Nikkei” - is an index that tracks the performance of Japan’s top 225 publicly-traded companies on the Tokyo Stock Exchange. It is to Japan what the Dow Jones Industrial Average is to the United States. The Nikkei is a price-weighted index. What is a Bear Straddle? What is Foreign Exchange? Continue reading...
The CAC 40 is an index tracking performance of stocks in France. The CAC 40 is an index that tracks the 40 largest capitalization stocks of the 100 listed on the Euronext Paris stock exchange. It provides a good barometer for the performance and standing of the French economy. What is the DAX? What is the EURO STOXX 50? Continue reading...
Several large and well-known investment banks and companies are major players in the ETF industry. There are several large investment houses which specialize in managing ETFs such as Barclays, ProShares, Vanguard, and Guggenheim Partners, LLC. ETFs are also managed by investment firms such as Schwab, Credit Suisse, and Eaton Vance. Even New York Life’s Mainstay Investments recently acquired Index IQ. The ETF industry has been growing rapidly in the last 10 years, with more investors choosing to use them, more ETFs on the market, and more investment companies choosing to offer them. Continue reading...
Technical indicators include moving average lines, trading bands, oscillators, and formations (found here), often presented in combinations. Popular indicators carry proper names. There are thousands of technical indicators, but the most popular ones are the MACD, Bollinger Bands, Stochastic Oscillators, the Directional Movement Indicator and various patterns of price behavior, such as “Head and Shoulder” formations. Continue reading...