What Do You Mean By Moving Averages indicator In Technical Analysis?

What Do You Mean By Moving Averages indicator In Technical Analysis?

Moving Averages indicator

INTRODUCTION

Moving averages indicator are the most common & simple to use tool for technical analysis. Moving averages indicator do not predict the price direction but rather define the current direction with a lag. That’s why they are called ‘’lagging’’ indicators. Moving averages indicators work well when prices are in trend, and they can give a false signal when prices are not trending.

For Short term Trend one canconsidered11 & 21-day moving averages, for the Medium/Intermediate term 21 to 100 days is generally considered a good measure. Finally, any moving average indicators that uses 100 days or more, can be considered measuring long-term momentum. The shorter the MA the more sensitive the signal.

Types of Moving Average indicator :

The most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These moving averages indicators can be used to spot the direction of the trend or to identify potential support and resistance levels.

Simple Moving Average indicators (SMA)

A simple moving average indicators is computed by taking the average price of a security over a certain number of periods. While it is also possible to calculate moving averages from the open, the high, and the low data points but most moving averages are constructed using the closing price. For example, a 5-day SMA is calculated by adding the closing price for the last 5 days and dividing the total by 5.

Daily closing prices 5, 6, 7, 8, 9 & 10

First day of 5-day SMA: (5+6+7+8+9)/5 =7

The second day of 5-day SMA: (6+7+8+9+10)/5 =8

Whether you choose a 21-day average or a 52-week average the calculation is the same instead of adding five days you add 21-day or 52 weeks and divide by the same, respectively.

Exponential Moving Average indicators

The exponential moving average indicators is used to reduce lag in simple moving averages. It reduces the lag by applying more weight to recent prices relative to older prices, hence it will react immediately to recent price change than an SMA For example a 5-period exponential moving average weighs the most recent price 33.33%

The formula for an exponential moving average is

EMA= (Closing price –EMA (previous day)) * (Multiplier) + EMA (previous day)

A 5-period EMA Multiplier is calculated below:

2/(Time period+1)= 2/(5+1) = 33.33%

Role Of Moving Average In Determining Market Trends

Moving average can also be used to determine the trends, If the moving average is rising then the trend is considered up and if the moving average is falling, the trend is considered down. It also helps in identifying support & resistance.

As seen in the following chart of Reliance Capital, 100-day medium-term moving average which was previously acting as resistance level is now acting as a strong support. The stock also broke the 20-day short-term moving average on several occasions but was able to sustain above 100 days moving average, which indicates the medium-term trend of the stock is very strong. With the combination of two moving averages, the Investor and investor/trader can make their buy or sell decisions depending on the time horizon to hold.

Role of Moving Averages in Technical Analysis of the Market

Moving Average Crossover

Moving average crossover is a popular strategy for defining entry & exit points.

When the shorter moving average crosses above the long-term moving average, it shows the trend is shifting up and creates a buy signal. This is called “Golden Cross”.

When a shorter moving average crosses below the long-term moving average, it shows the trend is shifting down and creates a sell signal. This is called ‘Death Cross.

Moving Average Crossovers – Technical Analysis

Summary

Moving average helps to identify the trend and keeps you on the right side of the trend, one should not solely rely on the moving average to enter at the bottom and exit at the top rather it should be used in conjunction with other technical tools that complement them. Moving averages also helps in level of security.

Difference Between NSE and BSE Stock Exchange

Difference Between NSE and BSE Stock Exchange – How to Choose an Exchange for Your Trades

Difference Between NSE and BSE Stock Exchange

Stock exchanges are marketplaces wherein you can trade in listed shares and other securities like bonds and commodities. Stock exchanges allow companies to list their stock for public subscription to raise additional funds for the business. On the other side, stock exchanges serve as a trading platform for investors where they can earn and create wealth. The two leading stock exchanges in India are the NSE and BSE. Both of these are independent stock exchanges. Let’s delve into the difference between NSE AND BSE Stock Exchange.

What is NSE?

Short for National Stock Exchange, NSE is the largest stock exchange in India on the basis of market capitalisation. NSE was founded in 1992, and it brought with it the electronic mode of trading in stocks. Headquartered in Mumbai, NSE uses the NIFTY 50 index as its benchmark, which comprises the top 50 stocks of the share market across different sectors.

What is BSE?

BSE is an abbreviation for the Bombay Stock Exchange. It is the oldest stock exchange in India which was founded in 1875. It has earned permanent recognition under the provisions of the Securities Contract (Regulation) Act, 1956. BSE also boasts of being the first stock exchange in Asia and is recognised among the world’s leading stock exchanges. In 1986, BSE introduced the S&P BSE SUNSEX, which consists of stocks of the top 30 companies listed on the Bombay stock exchange.

Similarities between BSE and NSE

Now that you know what BSE and NSE are, here’s a look at their similarities:

  • Both these exchanges are popular among investors.
  • Both allow stock trading.
  • Besides equity, you can trade in bonds, mutual funds and ETFs, commodities, derivatives, futures and options, and currencies on these exchanges.
  • BSE and NSE are regulated by the Securities and Exchange Board of India (SEBI).
  • Both these exchanges have electronic trading facilities.
  • The headquarters of NSE and BSE are both located in Mumbai.

Difference between BSE and NSE Stock Exchange

The similarities between NSE and BSE are not limited to the points mentioned above. However, these exchanges are different from one another too. Take a look at the difference between NSE and BSE Stock Exchange.

Points of difference NSE BSE
Full form National Stock Exchange Bombay Stock Exchange
Formed in 1992 1875
Benchmark index Nifty 50 S&P BSE Sensex
Companies in the index 50 30
Companies listed on the exchange 5,000+ Around 2,000
Transaction Charge The transaction charges are 0.00335% on turnover (buy & sell) for equity delivery and intraday trades, 0.00195% on turnover for futures, 0.053% on premium value for options. The transaction charges are 0.00375% for the turnover value of buy and 0.00275% for the turnover value of buy and sell.
Ranking in the world NSE ranks 11th among the largest stock exchanges in the world. BSE ranks 10th among the largest stock exchanges in the world.
Use of the electronic trading platform NSE started the electronic trading platform right from its inception in 1992. BSE incorporated the electronic trading platform called BOLT (BSE On-Line Trading) in 1995.
Trading volume Very high Lower than NSE
Online trading system Introduced in 1995 Introduced in 1992
Products traded on the platform Equity stocks
Equity derivatives
Currency derivatives
Commodity derivatives
Mutual funds
Exchange-Traded Funds
Security Lending & Borrowing Scheme
Institutional Placement Program
Offer for Sale
Corporate Bonds
Equity stocks
Equity derivatives
Currency derivatives
Commodity derivatives
Mutual funds
Exchange-Traded Funds
Offer for Sale
Corporate Bonds
Liquidity NSE has higher liquidity as they trade more volume compared to BSE. BSE offers comparably low liquidity.
Market capitalisation ~ Rs. 15,77,07,127 cr. ~ Rs. 26,529,050.19 cr.
Network The network of NSE is over 1,500 cities. The network of BSE is 450 cities.
Official website address www.nseindia.com www.bseindia.com

How has NSE become more popular than BSE?

Over time, NSE beat the BSE to become the leading stock exchange in India due to several reasons listed below:

  1. Technology: NSE’s advanced and reliable technology infrastructure enabled faster and more efficient trading than BSE.
  2. Products: NSE offered a more comprehensive range of financial products, including derivatives, which attracted more investors and traders.
  3. Transparency: NSE strongly focused on transparency and disclosure, which instilled investor confidence and helped prevent fraudulent activities.
  4. Liquidity: NSE was known for higher liquidity levels, which meant more trading activity and higher trading volumes, making it easier for investors to buy and sell securities.
  5. Efficiency: NSE introduced several measures to increase efficiency, such as market-wide circuit breakers, which helped stabilise the market during times of volatility.
  6. Regulatory environment: The Securities and Exchange Board of India (SEBI) introduced several measures favouring NSE, such as allowing it to launch new products without prior approval, which helped NSE grow faster than BSE.

Overall, the combination of technology, product range, transparency, liquidity, efficiency, and regulatory environment made NSE the preferred stock exchange in India, increasing its popularity over BSE.

Which platform to choose?

Both NSE and BSE offer trading opportunities in different types of securities for Stock Exchange. NSE, however, boasts of a large trading volume making it easier for the price discovery mechanism to work effectively. This volume outweighs the limitation of the index containing only a few stocks and can allow better trading opportunities. However, some stocks are listed on the BSE only, so if you wish to invest in such stocks, you would have to trade on the BSE.

You can compare the stocks across both these platforms and then choose one as per your requirements. Alternatively, you can opt for arbitrage trading and buy stock from NSE and sell it in BSE. Moreover, there would be a difference in the price of the same stock on NSE and BSE platforms depending on the stock’s liquidity.

To wrap up

Go through the difference between NSE and BSE Stock Exchange  before you choose either platform. Understand how these platforms work and then trade in them. Both these exchanges experience market volatility, and so a healthy risk appetite is recommended if you wish to trade in them.

FAQs

Which is better, NSE or BSE?

The discussion of which is better, Difference between NSE and BSE Stock Exchange has no end. Hence, build a financial plan, look for stocks that to invest in according to the plan and budget, and choose whichever platform suits your needs and requirements the best. Alternatively, you can consult a financial advisor before you make any investment decision.

Can I buy in BSE and sell in NSE?

The simple answer to this question is yes. Shares can be bought on one exchange and sold on another only from the next day, i.e., on T+1. For trading purposes, you can buy on NSE and sell on BSE via intraday and deliver shares. It is called arbitrage trading.

Why is NSE preferred over BSE?

Most traders in India trade on NSE over BSE, as suggested by the trading volume difference in both stock exchanges, for several reasons. Some of these reasons include the following:

1. Technology: NSE has a more advanced and reliable technology infrastructure than BSE, allowing faster and more efficient trading.
2. Products: NSE offers a wider range of financial products, including derivatives, which attract more investors and traders.
3. Transparency: NSE strongly focuses on transparency and disclosure, which instils investor confidence and helps prevent fraudulent activities.
4. Liquidity: NSE is known for higher liquidity levels, meaning there is more trading activity and higher trading volumes, making it easier for investors to buy and sell securities.
5. Efficiency: NSE has introduced several measures to increase efficiency, such as market-wide circuit breakers, which help stabilise the market during times of volatility.

Overall, the combination of technology, product range, transparency, liquidity, and efficiency makes NSE the preferred stock exchange in India.

 

What is the Stock Market?

 

what is the stock market

Introduction

A stock market is a place where people buy and sell pieces of big companies. Think of it as a big marketplace for company ownership. In this simple guide, we’ll explain what is the stock market is, how it works, and why it’s important.

What is the Stock Market ?

Imagine you have a favourite pizza place, and they want to expand. They need money to open new stores and make better pizzas. Instead of borrowing from a bank, they decide to share their pizza business with others. They cut their pizza into tiny pieces (let’s call them “shares”) and offer them for sale.

People who believe in the pizza place’s success buy these shares. Now, they own a small part of the pizza business. This buying and selling of shares happens in the stock market.

How Does the Stock Market Work?

Here are the basics:

Stock Exchanges: The stock market is like a big shopping mall with different stores. Each store is a stock exchange. Popular ones include the NYSE and Nasdaq. Companies list their shares on these exchanges, and people trade them there.

Stocks and Shares: When you buy a share, you’re buying a tiny piece of a company. Think of it like owning a slice of a pizza. The more shares you have, the bigger your slice.

Brokers and Trading: You can’t go to the stock exchange yourself, so you use a broker. They’re like the middlemen who help you buy or sell shares. Nowadays, many people do this online.

Indices: These are like scoreboards for the stock market. They tell us how well it’s doing. You might hear about the S&P 500 or Dow Jones. These are indices that track the performance of many companies at once.

Volatility: This means how much prices go up and down. Just like pizza prices can change daily, stock prices can change too. Sometimes they change a lot, and that’s called “volatility.”

Who’s Involved in the Stock Market?

Here are the main players:

Investors: These are regular people, banks, or big funds. They buy shares to make money. They can buy them and hold onto them for a long time.

Traders: These folks are like the speed racers of the stock market. They buy and sell shares quickly, hoping to make fast money.

Brokers: They’re like the helpers. You tell them what you want to buy or sell, and they make it happen.

Regulators: These are like the referees. They make sure everyone plays fair and follows the rules.

Why Does the Stock Market Matter?

The stock market is essential for a few reasons:

Money for Growth: Companies use the stock market to get money for cool stuff, like making better pizzas or creating new gadgets. This helps businesses grow and create jobs.

Wealth Building: People can make money by owning shares. As companies do well, the value of the shares can go up. This can help people save for big things like buying a house or retiring.

Economic Checker: Think of the stock market as a thermometer for the economy. When it’s doing well, it usually means the economy is doing well too.

Retirement Savings: Many folks use the stock market to save for their retirement. It’s like a long-term savings plan that can grow over time.

The Ups and Downs

Remember, what is the stock market can be like a rollercoaster. Prices can go up, and they can go down. It’s essential to be careful and learn about it before diving in. Some tips:

Diversify: Don’t put all your money into one stock. Spread it around to reduce risk.

Think Long-Term: Don’t panic if prices drop a bit. Over time, the stock market tends to go up.

Learn: The more you know, the better decisions you can make.

Conclusion

What is The stock market might seem complex, but it’s like a giant puzzle that many people can enjoy. It’s where businesses get money, people invest for their future, and the economy shows its temperature. Just remember, like any game, there are rules, risks, and rewards. So, if you’re interested, dive in, but do it wisely!