Is there a way to Identify Market Direction?
YES, there are many ways and techniques to do this. We will look at ONLY one technique that uses free available market data.
We need to 1st understand what is Market Breadth?
Stock market breadth is a tally of how many stocks rose in value versus how many stocks declined in value. Think of this like a stock market thermometer which tells us about the health of the market.
Different ways to calculate Market Breadth: (Just for information purpose, No need to go in details..)here.
Unfortunately, for Indians Indices (BSE & NSE) lot of the needed data is not available freely. Even if the data is available then no financial/ brokerage/ trading website provides the relevant charts for free. Many of the breadth indicators need calculations of aggregate level and can be complex at times. The only option is to painfully build them yourself, however in recent times few websites are offering such indicators.
We will be focusing on two breadth indicators:
This sounds very difficult!!!
Don't worry, we do not need to understand all of this in detail, basic understanding is enough. Just make sure we understand what it means on the surface so that we know how to use it.
No need to worry about following: (Not because it is not important but because it might be difficult to understand...)
- What are these breadth indicators?
- How to calculate each oft hem?
- Where to find them!!!
We will provide all the necessary information and direction on how to use these indicators and where can we find them. We have created the McClellan Summation Index (we will call this as McClellan Indicator) and all you need to do is few steps to use it for better investment choices.
- Establish relationship between Breadth Indicator and Sensex
2. Charts created from above data will reveal great deal of information
- Device a technique that would help us identify probable market direction
2. Based on our analysis of past data we can identify probable future market direction
3. Finally, we will identify our Entry & Exit signal
In next section, we will explain the technique on how to use these breadth indicators and how to derive probable market direction....