Chapter 14: Indices Guide
Market indices provide a high-level view of how a group of securities is performing. They are one of the best tools for understanding overall market trends.
This guide builds on the Charts & Technical Analysis chapter and explains how to interpret indices on Investi.
Progress: Chapter 14 of 16
📌 What You Will Learn
- What a market index is
- How indices are calculated
- What OHLC means
- How to use indices in investment decisions
📊 What is a Market Index?
A market index tracks the performance of a group of securities.
It is used to:
- Measure overall market performance
- Compare individual investments against the market
- Identify trends
View indices here:
View Indices
📈 Why Indices Matter
Indices help answer key questions:
- Is the market going up or down?
- Are most companies performing well?
- How does a specific stock compare to the market?
💡 A rising index usually indicates positive market sentiment.
📊 OHLC Explained
Indices are often displayed using OHLC data:
- Open — price at the start of the period
- High — highest price reached
- Low — lowest price reached
- Close — price at the end of the period
These values are commonly shown using:
⚙️ How Indices Are Calculated
Indices are constructed using different methodologies.
Common approaches:
- Price-weighted — based on share price
- Market-cap weighted — based on company size
- Equal-weighted — all companies have equal influence
Understanding the methodology helps interpret movements correctly.
📉 Using Indices in Analysis
You can use indices to:
- Compare a company’s performance to the market
- Identify bull or bear trends
- Understand broader economic conditions
Example:
- If the index is rising but your stock is falling → underperformance
- If both are rising → aligned with market trend
📊 Indices vs Individual Stocks
Indices provide a broader perspective than individual stocks.
Use indices alongside:
🧠 How to Use Indices on Investi
A simple approach:
- Check overall market direction
- Compare with individual investments
- Use charts to identify trends
Then analyse further using:
Advanced Charts
⚠️ Common Mistakes
- Assuming all stocks move with the index
- Ignoring index methodology
- Using indices without deeper analysis
💡 Indices provide context — not complete answers.
🔗 Related Guides
⬅️ Previous:
13. Charts & Technical Analysis
➡️ Next:
15. Funds