STOCK MARKET INDICATORS 101
Technical Indicators (based on price and volume charts)
Fundamental Indicators (based on company performance)
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PART 1: TECHNICAL INDICATORS
These help traders predict short-term movements by analyzing price and volume.
Moving Averages (MA)
What it is: Shows the average price over a period (like 50 or 200 days).
SMA (Simple Moving Average): Straight average.
EMA (Exponential Moving Average): Gives more weight to recent prices.
Everyday example: It’s like checking your average sleep over 7 days. If it goes up, you're sleeping better. If the average price goes up, the trend is bullish.
How traders use it:
Price above the moving average? Bullish
Price below? Bearish
Crossovers (like 50 EMA crossing 200 EMA) = trend shift
2. Relative Strength Index (RSI)
What it is: A momentum indicator that shows if a stock is overbought or oversold.
RSI > 70 = Overbought (might drop soon)
RSI < 30 = Oversold (might rise soon)
Example: If your friend keeps buying sneakers nonstop for 10 days, you’d say: “Bro, chill, you're overdoing it.” That’s what RSI says about a stock.
3. MACD (Moving Average Convergence Divergence)
What it is: Shows the relationship between two EMAs (typically 12 and 26).
Parts:
MACD Line
Signal Line
Histogram (difference between them)
How traders use it:
When MACD crosses above the signal line → Buy
When it crosses below → Sell
Everyday example: Think of two cars on the highway (fast and slow). When the fast car overtakes the slow one, the trend changes.
4. Volume
What it is: Shows how many shares are being traded.
Why it matters: High volume = strong interest. Low volume = weak conviction.
Everyday example: If a party has 100 people dancing, it’s lit. If only 2 people are dancing, maybe the DJ’s not good. Same with stock moves.
5. VWAP (Volume Weighted Average Price)
What it is: Average price a stock traded at during the day, weighted by volume.
Use:
Price above VWAP = buyers in control
Price below VWAP = sellers in control
Everyday example: Imagine you’re buying mangos all day. If your average price was $1.00 but later they sell at $0.80, you overpaid.
6. Bollinger Bands
What it is: Shows volatility using 3 lines: a moving average and two bands (upper and lower).
Use:
Price touching upper band = may be overbought
Price touching lower band = may be oversold
Bands widening = more volatility
Example: It’s like your mood swings. If they’re too extreme, it means something big is coming.
7. Support and Resistance
Support: Price level where buying pressure prevents further drop.
Resistance: Price level where selling pressure prevents further rise.
Everyday example: Think of a ball bouncing inside a box. The floor is support. The ceiling is resistance. The price keeps bouncing unless it breaks out.
PART 2: FUNDAMENTAL INDICATORS
These help long-term investors evaluate the health and value of a company.
1. Earnings Per Share (EPS)
What it is: Company’s profit divided by the number of shares.
Use: Higher EPS = more profitable
Example: If a bakery makes $10,000 profit and has 1,000 pieces (shares), each piece earns $10.
2. Price-to-Earnings Ratio (P/E)
What it is: Price of a stock divided by its EPS.
Use:
High P/E = Expensive stock
Low P/E = Potential value or risky
Example: You’re buying a bakery share at $100. If it earns $5 per share → P/E = 20. Is it worth it?
3. Return on Equity (ROE)
What it is: How well the company uses investor money to generate profits.
Formula: Net Income / Shareholder Equity
Use: Higher ROE = More efficient company
4. Debt-to-Equity Ratio
What it is: Compares a company’s debt to what shareholders own.
Use: Lower = safer High = risky
Example: If you’re buying a car with 90% debt, it’s risky. Same with companies.
5. Revenue and Profit Growth
Revenue: Total money the company brings in
Net Profit: What’s left after all expenses
You want to see both going up year after year.
6. Dividend Yield
What it is: Shows how much a company pays in dividends compared to its stock price.
Use: Great for passive income investors.
Example: If a stock pays $3 per year and costs $100 → Yield = 3%
QUICK RECAP
IndicatorTypeUseMoving AveragesTechnicalTrend directionRSITechnicalOverbought/oversoldMACDTechnicalMomentum/crossoversVWAPTechnicalAverage intraday priceEPSFundamentalProfitabilityP/E RatioFundamentalValuationROEFundamentalEfficiencyD/E RatioFundamentalDebt risk