Can someone please explain to me how TA can be applied to trading indexes. I don't have any interest in doing this I just don't understand how it can be interpreted the same as a single instrument such as a stock or currency pair. ie How can the collective movements of say FTSE100 index have support and resistance? Is it becuase it "is" the combined movement and ignores indivdual stocks by indicating the markets appetitie to buy or sell in general. I hope my question makes sense and look forward to some help with this. Thanks in advance.
yes plus it's an averaged collection.
Also, many in the market will keep an eye on the index even though they are trading other shares. TBH, with ETFs and other things in recent years, many of the bigger stocks are very correlated. Even in an index, the major moves are affected by a select few of the stocks - you can look up the weightings of each stock vs the index online.
Many people will change their behaviour to be buyers or sellers of individual stocks to some degree dependent on where the index is and where its TA suggests it's going next.
They will have shortlists of stocks, whether or not they're components of the index, that they will start buying when the index reaches a certain level, or selling when it falls to a certain level. The index is a reasonable gauge of overall market sentiment and that it pays to be aware of - it would be brave indeed to be a buyer of the UK banks, BP, Vodafone and the like (or even smallcaps) when the FTSE (or S&P) suggests a major downward move is imminent.
They will have shortlists of stocks, whether or not they're components of the index, that they will start buying when the index reaches a certain level, or selling when it falls to a certain level. The index is a reasonable gauge of overall market sentiment and that it pays to be aware of - it would be brave indeed to be a buyer of the UK banks, BP, Vodafone and the like (or even smallcaps) when the FTSE (or S&P) suggests a major downward move is imminent.
tina.joe81
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Hi Konisberg,
Index is like a barometer of stock market because the index components will have high market capitalization(i.e Top companies of the economy) and the price movement of these stock will make index move up and down. Collectively the index is treated as single instrument. All the market participants will be watching the index for particular support and resistance. Most of the time other stocks tunes with the index.
There is famous saying about this Index:
"A Rising Tide Lifts All Ships"
Tide - Index
Ships - Other stocks
Regards,
Tina Joe
Index is like a barometer of stock market because the index components will have high market capitalization(i.e Top companies of the economy) and the price movement of these stock will make index move up and down. Collectively the index is treated as single instrument. All the market participants will be watching the index for particular support and resistance. Most of the time other stocks tunes with the index.
There is famous saying about this Index:
"A Rising Tide Lifts All Ships"
Tide - Index
Ships - Other stocks
Regards,
Tina Joe
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thelerner
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I agree with Tina's 'Rising Tide' statement. Maybe even better is herd behavior. A stock, sector or whole market becomes hot and people chase it regardless of fundamentals. Because so much market activity is Mutual Fund/ETF based things rise in unison as money pours in and/or out.
Michael
Michael
