In this blog
we have tried to explain our blog readers to educate regarding the breadth of
market theory and the breadth indicator used in technical analysis.
Breadth of Market Theory
Breadth of
market is a technical analysis theory that forecasts the market strength
depending on the number of stocks that advanced or declined on a particular trading day. This
indicator is used to get an idea on the number of stocks advancing and
declining on a particular day. The market will be rising if the breadth
indicator looks strong and vice versa.
Breadth Indicator
It is a
mathematical formula which uses advancing and declining parameters to evaluate
the amount of contribution in the movement of the stock
market. By
evaluating the number of stocks that got increased or decreased in price and the
number of trades the investors are placing for these stocks, breadth indicators can indicate whether the overall market sentiment is bullish (positive market breadth) or
bearish in nature(negative market breadth). Investors can use these breadth
indicators to evaluate the performance of a particular industry or sector, or
to examine the magnitude of a rally or retreat.
There are
different types of technical breadth indicators used by technical
analysts, such as the force index, Chaikin oscillator, up/down volume ratio, up/down volume
spread, on-balance volume and cumulative
volume index. One well-known breadth
indicator is the Arms
index, which assesses the
relationship between the number of advancing and declining stocks and the
trading volume of each. This breadth indicator guides the investors determine
whether the market is bullish, bearish or neutral. A drawback to this indicator
is that it can become inexact when the market behaves unusually.
No comments:
Post a Comment