Index chart and indicators

Hi, I have a doubt. Most of the people trade in options by looking at index chart, say Bank nifty, nifty etc… Bank nifty track the stocks included in Bank nifty and it moves according to the stocks. So is it illogical to trade with nifty or bank nifty chart?

For eg, if I’m using super trend in ICICI bank, the super trend calculates the ICICI bank shares price and gives the signal since there is actual trades happening in that stocks. But how does an indicator or pivots sounds logical in Index? Because index is just replicating a group of stocks.

I’m sorry if my question is not clear :upside_down_face:

1 Like

Index represents trend of broader market ie. the collective trend of stocks it’s constitutes of, each stock has different weightage in Index and has impact on movement of Index price according to it’s weightage, if you start tracking all these stocks in isolation to gauge the trend it will only create chaos and won’t give you any clear results.

Also, indicators are based on mathematical formula which uses historical price as input to give you results and represent them visually on chart. Wherever there are numbers the indicators will give you results based on their formula, it’s doesn’t make difference whether it is plotted on chart of an stock or an Index.

2 Likes

If you are a type of investor who has a trading style of Scalper then Charts and indicators are the best tool for you. Depending upon your knowledge and risk appetite you can use any of the charts or indicators. Personally I use Bollinger Bands, as this uses the moving average, an upper limit and a lower one of a stock. This helps me in predicting the stock trading range.