Markets consist of huge crowds of traders whose buying and selling create waves of mass optimism and pessimism. The resulting price trends lure in bystanders, and their buying and selling reinforces those trends, driving them to unsustainable extremes. Fundamental economic factors may rule the markets in the long run, but mass psychology determines intermediate- and short-term trends.
Several indicators take the pulse of the market crowd in stocks and futures. The indicators that analyze the stock market as a whole are especially useful for trading stock index futures and options. Since the broad market trends influence most stocks, those signals also help stock traders.
General market indicators are especially important to those who trade in the United States, where several advisory services track them. Overseas traders could profit from developing similar tools in their own countries.
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The New High–New Low Index (NH-NL)
- measures the number of new highs on any given day.
- tracks the number of the weakest stocks on the exchange.
- measures the number of new lows on any given day.
- tracks the number of the strongest stocks on the exchange.
- 1 and 3
- 2 and 4
- 1, 2, 3, and 4
- None of the above
Match the following NH-NL patterns ...