Finance Blog

Index Futures Analysis and Indicators

Technical analysis is core aspect of making profits in stock market. In India, share trading is possible by availing stock broking service of brokerage companies. However, if you are looking for earning as a long term investment trader then you must become expert of technical analysis and indicators to gauge the market sentiments. It will also immensely help in understanding pulses of futures and options traded in index futures of India. We should consider certain important factor for technical analysis of futures trading that include oil, pulses, grains, commodities and currency.

We could even say, all wealthy traders use technical analysis but not all technical analysis traders are wealthy although T.A. is the most precise way of futures trading. It is also useful note that fundamentals play their part in indicating whether a price will move up or down. It gives you the edge over other traders.

Why Technical Analysis is Important in Index futures?

Technical Analysis is so powerful because of a few reasons:

1) It represents numbers. All information and its impact on the market and traders is represented in a currency’s price.

2) It helps to estimate trends and the commodity exchange market is volatile and trendy.

3) Mostly observed, certain chart patterns are consistent, reliable and repeat themselves. T.A. helps us to see them. It is like knowing future projections in present.

Here’s one way of putting technical analysis into perspective; without it you cannot think of investing in futures and options. We all know that ROI is better for stock prices that move in trends. Researches proved that trend positions greatly improve their chances of making a profitable trade with analysis.

Trends give you insights in understanding overall market direction and often alerts the investors to make profits at entry and exit points. Analysis also develop habit of disciplined stock trading so that you never incur loss in index futures.

Price Check

Stay with the trend, follow the price.

Find the price of the currency pair. If certain futures price is ₹ 140.45 and moves to ₹ 139.60 then ₹ 125.90 then the market is showing a down trend. Concern yourself only with what the market is doing not what it might do. Keep track on the markets and the indicators will back it up revealing overviewed details.

Moving Rate

Moving averages or MAs are indicators. It indicates you the price at a given point of time over a defined period of intervals. They are called moving because they give you the latest price while calculating the average based on the selected time measure.

They lag the market so to give you an indication of a change in trend, use a shorter average such as a 5 or 10 day moving average. By combining a shorter term and longer term MA you can detect a buy signal when the shorter term crosses the longer term moving average in the upward direction. Or a sell signal if it crosses in a downward direction. For example, you could use a 5 day versus a 20 day moving average or a 40 day versus a 200 day moving average.

There are simple moving averages, linearly weighted which gives more importance to the recent prices or exponentially weighted. The latter is a favourite because it considers all prices in a time period but emphasizes the importance of the most recent price changes.

MACD

Moving average convergence/divergence or MACDs are also good indicators. The MACD line is the 12-day Exponential Moving Average (EMA) less the 26-day EMA. Based on moving averages, a MACD plots the difference between a 26 exponential moving average (EMA) and a 12 day exponential moving average, with a 9 day used as a trigger line. If a MACD is positive when the market is still downward, it sends a strong buy signal. The converse also works. Here, you can download stock trading app.

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