Application of moving average as technical indicator to predict stock market direction

The shares and securities price movements as analyzed broadly by two key approaches, namely fundamental approach and technical approach. The fundamental approach emphasis much on the growth prospects of economy, stability of government, the prospects of the specific industry and the specific company whereas the technical approach emphasis much on the price and volume movement of the stock. Based on the price and volume movements of stock the buying and selling decisions are taken.

“The technical approach is the oldest approach to equity investment, dating back to the late 19^th century. The technical analysis continues to flourish in modern times as well. It is widely used by institutional investors, operators and a large number of retail investors. In fact the investors analysis both fundamentals and technical so that he can buy the right stock at right time”. The technical approach to investing is essentially a reflection of the idea that prices move in trends, which are determined by the changing attitudes of investors towards a verity of economic, monetary, political and psychological forces. The technical analysis helps the investor to identify the trend reversals at an earlier stage to formulate the buying and selling strategy. Technical analysts for using indicators like; Volume of trade, Breadth of the market, Moving averages, Short sales position, Odd lot trading, Relative strength and cash reserve ratio of mutual funds. These indicators are used to predict the direction of the price movement of scrip and the direction of the market and theses indicators the Moving average is considered as most reliable and the better indicator of the future direction. Most of the technical analysts use the moving average since it is very simple and gives reliable signal about the forth coming bull/bear trend.