Stock market traders and investors in general try to understand the various factors that cause the stock market to fall and rise. News, corporate earnings, political atmosphere, market sentiments and policy interest rates are strong indicators. Likewise, economic indicators such as GDP, inflation and industrial output, are some other economic data which can help form an opinion or view on stock markets or specific company shares.

There is a lot of economic data which is frequently released by the government, with each playing a crucial role in the overall economic growth, which could be useful to estimate stock market movements. For instance, quarterly GDP data indicate the health of the overall economy and so does the monthly index of industrial production (IIP) data. For new investors in the stock markets, many of this information may be overwhelming, but over time by observing trends, correlations between economic indicators and stock market movement can give them insights into how the markets and specific stocks in which they have investments or wish to invest will behave.

Economic Indicators

An interconnected world makes it next to impossible for markets to be stay unaffected by global events. Stock markets in general and stocks in particular can be affected by world events such political instability or a war some part of the world. These influences can be direct and indirect, and they often occur in chain reactions. For instance, a cargo ship stuck in the Suez Canal in March 2021, caused stock markets to be impacted across the world.

Global Events

Generally, the stock price refers to the current price that a share of stock is trading for on the market. The first time a company offers its shares to public, it does at a price which reflects the value of the company. However, once the shares of the company are listed, the price of the stock could go down or up depending on numerous factors within the economy as a whole, changes within industries, political events, war, and environmental changes etc.

As an investor, the price of a stock is what you need to know when making a decision to sell or buy a stock. For instance, the price of one share of Infosys Ltd was Rs 1,402.85 at the close of Indian stock markets on April 13, 2021. The price of one share of a company is arrived based on several factors, but for an investor, the price is an indication of how many shares they could buy or sell to profit. Price of a share is also useful to analyse the value of a company and the historical trends, which could help in making an informed investment decision.

Asset Price

Just the way score in a cricket match indicates the runs scored by a team; volume in stock market parlance is trading volume, which is the number of shares traded over a particular period. The traded number indicates both the shares that are bought and sold during the trading period. For instance, if 100 shares of a company X were sold and then bought again before lunch only to be sold again and finally bought before closing; the traded volume of shares of company X would be 400. Even though 100 shares were traded multiple times; the volume would indicate the cumulative number of trades and not the unique number of traded shares when arriving at volume.

Investors and traders can use traded volume data to understand the intra-day movement of a particular stock, with net buy and sell data in it. Volume bars are usually colored green or red; with green representing net buying volume while red represents net selling volume. Volume indicates the trading activity of a share, with heavier volume indicating heavier interest and vice versa or lighter volume.

Volume

A stock market index is a selection of certain stocks that are listed on the stock markets that meet a prefixed criterion to be part of the index. The selection criteria can vary based on sector, industry, market capitalisation and many others. For instance, the S&amp;P BSE Sensex is a collection of 30 best-performing stocks and the Nifty 50, a collection of 50 best-performing stocks indicators of the BSE and NSE stock exchanges respectively. Both these indices are benchmark indices because they are the most concise, use the best practices to regulate the companies they pick and hence are the best points of reference for how the markets are doing in general.

An index is data that reflects the changes occurring in the financial markets and acts like an indicator that reflect the performance of the market as a whole or of a certain segment of the market. Each index measures the price movement and the performance of the shares that constitute that index, which essentially means that the performance of any stock market index is directly proportional to the performance of the underlying stocks that make up the index.

For instance, if the price of the 30 shares that constitute the BSE Sensex goes up; the index also goes up on that day. Index constituents carry specific weightage, which can be looked into in details on how the index has been constructed to know the impact that each constituent carries in the overall movement and performance of the index.

Stock Market Indices

This is an often used stock market indicator, especially in technical analysis with several versions and variations based on the average price over a specified period. The average is called moving because it is plotted on the chart bar by bar, forming a line that moves along the chart as the average value changes.

Simple average is the sum of data points divided by the number of data points, which gives you a mean number in the series. For example, the average of 4, 5 and 6 works to 5. Think of moving averages as an extension to this concept. Moving average is known so, because one can move the time duration, such as 50, 100 or 200 days. Like any other average data; moving average also evens out the stock or market data, to make informed decision.

Moving average data is used by traders to identify trends in the movement of a stock. For example, if the prices are above the moving average, it indicates that the stock is in an uptrend. Likewise, if the prices below the moving average line indicate a downtrend. However, any moving average data is known as a lagging indicator because it is based purely on the past prices of the stock. Moving average data can be used to indicate to the trader about the changes in future stock prices.

There are three important types of moving averages: simple moving average (SMA), weighted moving average (WMA) and exponential moving average (EMA). SMA gives equal weight to all the data points, with a longer SMA reacting slowly to recent price movements. In case of WMA, the recent data points are given higher weights, which reflect the most recent changes in the stock price movement. The EMA also assigns higher weights to new data points; however, it differs from WMA in the weights assigned. In the EMA, the weights change exponentially from one price point to the next. As a result, the average is closer to the current price compared to the SMA.

<table>
	<tbody>
		<tr>
			<td colspan="2">
			Simple Moving Average&nbsp;
			</td>
		</tr>
		<tr>
			<td>
			Date
			</td>
			<td>
			Closing price for Stock X (Rs)
			</td>
		</tr>
		<tr>
			<td>
			Monday
			</td>
			<td>
			1432.5
			</td>
		</tr>
		<tr>
			<td>
			Tuesday
			</td>
			<td>
			1431.2
			</td>
		</tr>
		<tr>
			<td>
			Wednesday
			</td>
			<td>
			1430.8
			</td>
		</tr>
		<tr>
			<td>
			Thursday
			</td>
			<td>
			1433.2
			</td>
		</tr>
		<tr>
			<td>
			Friday
			</td>
			<td>
			1432.1
			</td>
		</tr>
		<tr>
			<td>
			TOTAL
			</td>
			<td>
			7159.8
			</td>
		</tr>
		<tr>
			<td>
			SMA (Weekly)
			</td>
			<td>
			7159.8 &divide; 5 = 1431.96
			</td>
		</tr>
	</tbody>
</table>

Moving Average(s)

One often comes across the term stock market volatility, which is the measure of how much the stock market&#39;s overall value fluctuates. The fluctuation is both up and down, and the concept can be extended to indices and also individual stocks. You can calculate volatility by looking at how much an asset&#39;s price varies from its average price with standard deviation, which is the statistical measure commonly used to represent volatility.

Stock market volatility can pick up when external events create uncertainty. For example, while the major stock indices typically don&#39;t move by more than 1% in a single day, those indices routinely went up and down by 2-3% for several days during the beginning of the COVID-19 pandemic. The reason or the market volatility during the Corona pandemic is ongoing, which was triggered due to the uncertainty in the markets led to frantic buying and selling. By understanding how volatility works, you can put yourself in a better position to understand the current stock market conditions as a whole. This exercise would help you analyze the risk involved with any particular security, and construct a stock portfolio that is a great fit for your growth objectives and risk tolerance.

Volatility

The volatility Index, also known as VIX is a measure of market&#39;s expectation of volatility over the near term. The India VIX (India Volatility Index) was launched by the National Stock Exchange (NSE) in 2008 followed by NVIX Futures in 2014. VIX, as an asset class was introduced by the Chicago Board Options Exchange (CBOE), in the form of an index in 1993. Post its launch and immense popularity over the years, CBOE in 2004 introduced VIX derivative (F&amp;O) trading.

India VIX is the index which indicating the Indian market&rsquo;s volatility from the investor&rsquo;s perception. It is calculated based on a methodology similar to that used by CBOE which includes the best bid-ask quotes and expected volatility figure for the next 30 days with some amendments to suit and adapt the options order book of Nifty. The India VIX has a strong negative correlation with Nifty; so every time the India VIX falls, Nifty rises and when India VIX rises, Nifty is bound to fall. For instance, based on historical data, the India VIX soared to a peak a few days before Nifty touched a bottom post-Lehman crisis of 2008.

Volatility Index 

Think of circuit breaker as a trigger to prevent a freefall in the stock markets leading to a crash. In&nbsp;June 2001, the market regulator SEBI implemented index-based market-wide circuit breakers. Just the way an electric circuit breaker shuts down power during an extreme power fluctuation. When a stock hits an upper circuit, there will be only buyers and no sellers. Similarly, when a stock hits a lower circuit, there will be only sellers and no buyers. Circuit breakers differ across the markets worldwide.

On March 23, 2020 on back of the Corona pandemic, trading was halted for 45 minutes on BSE and NSE, after Sensex hit the circuit breaker of 10% in early trade. That day, the Sensex had lost 2,991 points or 10% which led to the triggering of circuit breaker on BSE and NSE at 9:58 am. There have been earlier instances too of circuit breakers, especially during the 2008-2009 global financial crises.

<table>
	<tbody>
		<tr>
			<td colspan="2">
			&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;Triggers Points
			</td>
		</tr>
		<tr>
			<td>
			Cause
			</td>
			<td>
			Effect&nbsp;
			</td>
		</tr>
		<tr>
			<td>
			10% fall or rise before 1pm
			</td>
			<td>
			Trading halt of 45 minutes
			</td>
		</tr>
		<tr>
			<td>
			10% fall or rise between 1 pm and 2:30 pm
			</td>
			<td>
			Trading halt of 15 minutes
			</td>
		</tr>
		<tr>
			<td>
			10% fall or rise after 2:30 pm
			</td>
			<td>
			No halt
			</td>
		</tr>
		<tr>
			<td>
			15% movement before 1pm
			</td>
			<td>
			Trading halt of 1 hour 45 minutes
			</td>
		</tr>
		<tr>
			<td>
			15% movement between 1 pm and 2:30pm
			</td>
			<td>
			Trading halted for 45 minutes
			</td>
		</tr>
		<tr>
			<td>
			15% movement after 2:30pm
			</td>
			<td>
			Trading is halted for the remainder of the day
			</td>
		</tr>
		<tr>
			<td>
			20% movement any time of the day
			</td>
			<td>
			Trading halt for the remainder of the day
			</td>
		</tr>
	</tbody>
</table>

Circuit Breakers

This is a simple, yet popular ratio that suggests the strength of the stock markets and is also known as A/D ratio. The A/D ratio is the ratio of the number of shares that advanced to the number of shares that declined. However, this ratio does not take into account the extent of decline or rise in the stock price. So, on any given day for a particular index, the A/D ratio will indicate the number of stocks that gained to number that declined. So, a 37/13 A/D ratio for Nifty 50 on a particular day indicates that 37 stocks advanced and 13 declined on that day. An A/D ratio of above 1 is considered positive breadth while below 1 is considered to be negative breadth. A/D data for the stock market is available at both the exchange websites each day.

Stock Market Indicators

Economic Indicators