New highs and new casualty rates show the number of stocks hitting 52 new highs, or lows, respectively. As a rule these indicators apply in selection of activities, indices and exchanges. The most common application of this technical study is its application to New Your Stock Exchange (NYSE).

As before and indicators based on decline, new highs and new lows indicators based on belonging to a range of indicators and are used in technical analysis to analyze the sentiment of the stock market to confirm the trend current or define the moment of potential changes in market sentiment can lead to the revocation of a direction of the trend.

Most popular indicators based on the highs and new lows of the numbers are "New Highs / Lows Oscillator" and "New Highs / Lows Ratio", which is calculated using the following formulas:

New High / Low oscillator = New Highs – New Lows

New High / Low Ratio = (New Highs – New Lows) / (New Highs + New Lows) * 100

As mentioned above, new highs / Minimum used to confirm a trend and to identify trend reversal points.

Technical parsing rules tell us that when the New Highs / Lows oscillator or moving relative along the evolution of prices (average price movement could be used in the comparison), then that shows that bullish sentiment is dominant in the market and confirms the uptrend. At the same time, when the New Highs / Lows Oscillator or moves down and the price low, then that shows that the downward trend is the dominant sentiment in the market and confirms the downtrend.

To detect the possible point of reversing the principle of divergence is used. The rules of technical analysis tells us when the New Highs / Lows Oscillator or the relationship begins to move after a fall while the price (the price moving average) still refuses reveals that the feeling began to change from bullish to bearish and there is a possibility that might affect the downward trend and push the index up. The statement is the opposite to the time when the New Highs / Lows Oscillator or the relationship begins to move down while the price continues to be – can be a sign of a trend to come down.

New highs and new lows based Technical indicators are used by investors to search the underground processes in the public market and very often used in the trading systems to confirm a trend and turning points in situ. When the indexes are still on the uptrend and the market overall remains downward changes in the new maximum / minimum trend shows that some actions started to become oversold and weak and could be a first sign that other populations may participate in it and become oversold and that the index and the stock market can crash down.

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Learn more about other breadth indicators and how they could be applied to the S&P 500, NASDAQ 100 and DJI based index trading systems.

Article Source: ArticlesBase.com – New Highs and Lows

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