Breadth Indicator
Candlefocus EditorBreadth indicators analyze market activity using data from millions of orders in the market. This is done by measuring the spread of buy and sell orders within an index, allowing for the identification of trends or market sentiment. Breadth indicators track the performance of stocks within an index by measuring the number of individual securities that are rising, falling, or remaining unchanged.
There are three primary types of breadth indicators: • The Advance/Decline Ratio which tracks the number of advancing stocks divided by the number of declining stocks over a given period of time. • The Arms Index, which measures the number of advancing stocks against the number of declining stocks, and examines the size of each advance and decline against their corresponding index. • The Number of Stocks Making New Highs/New Lows, which tracks the number of stocks setting a new high or new low price.
Breadth indicators are useful for traders seeking to stay abreast of activity in an index. By tracking these indicators, traders can identify when multiple stocks are moving in the same direction and when the momentum shifts from one direction to the other. Additionally, they can gauge the overall level of risk in the markets, as well as spot potential reversal signs when the direction of the stock index diverges from the direction of the breadth indicator.