Breadth Indicator

DEFINITION of 'Breadth Indicator'

A mathematical formula that uses advancing and declining issues to calculate the amount of participation in the movement of the stock market. By evaluating how many stocks are increasing or decreasing in price and how many trades investors are placing for these stocks, breadth indicators can show whether overall market sentiment is bullish (positive market breadth) or bearish (negative market breadth). Investors can also use breadth indicators to evaluate the behavior of a particular industry or sector, or to analyze the magnitude of a rally or retreat.

BREAKING DOWN 'Breadth Indicator'

There are several different types of 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 evaluates the relationship between the numbers of advancing and declining stocks and the trading volume of each. This breadth indicator helps investors determine whether the market is bullish, bearish or neutral. A drawback to this indicator is that it can become inaccurate when the market behaves unusually.

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RELATED FAQS
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