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Finance GlossaryTechnical Indicator
Technical Indicator
Definition of Technical Indicator
A technical indicator is a tool that uses mathematical calculations based on price, volume, or open interest data to analyse market trends and price behaviour. It helps traders identify potential entry and exit points, momentum shifts, and trend strength. Common indicators include moving averages, RSI, MACD, and Bollinger Bands.
Related Terms
Call Option
A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.
There are three components to a call option:
There are three components to a call option:
- Premium: the price paid to buy a call option
- Strike price: the pre-agreed price of the underlying asset
- Expiration date: the day after which the option contract will be worthless
Oversold
Oversold is a term that is used to denote that a security's price has dropped sharply, and the broader market sentiment indicates a high probability of rebound or price correction in the near term. It implies that the selling pressure is likely to be nearing exhaustion. Traders use indicators such as the Relative Strength Index (RSI) to detect oversold levels. When the RSI level is below 30, the particular security is oversold. An oversold condition implies that the price decline may be due for a pause or reversal, but it is not a sure sign of a price increase.
Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate, allowing investors to earn dividends from property portfolios without direct ownership. In India, REITs are listed on stock exchanges and must distribute at least 90% of taxable income as dividends. They provide liquidity, diversification, and exposure to commercial properties like offices and malls.
Discounted Cash Flow
Discounted cash flow is a method of valuing a company in the present based on future cash flows. An investment may be profitable in the present if the discounted cash flow is above the current cost of investing.
The formula to calculate discounted cash flows is:
DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n
The formula to calculate discounted cash flows is:
DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n
Balance Sheet
A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.
These are some of the key components of a balance sheet:
These are some of the key components of a balance sheet:
- Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets
- Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets
- Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities
- Long Term liabilities : Long-term loans, bonds, and others
- Shareholders’ equity : Paid-in capital and retained earnings
India VIX
India VIX is an index that measures volatility and market sentiment. The term VIX stands for Volatility Index and thus, the full form of India VIX is Indian Volatility Index.
A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.
India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.
However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.
A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.
India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.
However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.
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