Technical analysis has three major branches as per suggested by book “”.
These are sentiment indicators, flow of funds and market structure indicators.
Theselike insiders, mutual managers, financial institution, corporates and investors. moves to extremes in bull or bear markets. These indicators track major market group’s actions as they have power to turn around the markets.
For example, insiders like company shareholder dump there holding at top near turning points and vice versa.
Indices derived from such data shows turning points near top and bottoms. These indicators are likes contrary opening to current market situation.
Sentiment indicators examples, VIX, high/low indicator, major advance/decline indicator, Bullish Percentage indicator and so on.
Flow of funds indicator:
Thisin an attempt to measure their potential capacity for buying and selling in market. In simple words it actually tracks movement of the money in or out of the market. Most of the time liquidity trend is directly proportional to price trend of the market.
On demand side, where money gets into the market. There are factors like mutual funds cash positions, pension funds money, insurance company money, FFI money etc. while supply side, IPO, FPO and margin debt takes money out of the market. Flow of funds indicators gives rough idea of money coming in or going out but lacks details of where it is going, exact price of buying and selling etc. and also flow of funds data lags means it comes into market after actual event.
Market structure indicators:
track trend of various price indices, market breadth, market cycles and volumes to determine health of price trend.
The indicators those track trend of price are moving averages, peak and trough analysis, price patterns and trend lines. As market psychology changes, indicators records these changes and with that price trend likely to change or reverse. Some indicators rise and fall with price and volume but some gives divergences and deep observation of these signals, technician can forecast or get alert of possible trend and price change.
As rice is reflection of mass psychology or mass crowd action. These indicators will track crowds panic, fear, pessimism and confidence to generate future price movements. Learning these market trends facilitates technically oriented investors and traders to buy and sell with assurance in when trend starts or set up.