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Each day at the posts of specialists at the New York Stock Exchange, and inside the networked computers of Nasdaq market makers, a battle between bulls and bears rages. Each side tries to pull the market in the desired direction while frustrating the other side. As prices move up and down, the winner of the day is printed on each stock's price chart.

Internal indicators can be used to measure the force of the bulls and bears as they exert themselves. Volume indicates traders' level of participation - are they buying stocks that are going up, or selling shares of the losers? Stocks making new highs or lows for the year reveal traders' level of enthusiasm for the direction of market prices. The number of stocks ticking up or down speaks of the breadth of a rally or a retreat, that is, the number of stocks included in the move - something an index or simple price chart cannot do.

Charting volume, new high/low and advance/decline data for a given market is a way to confirm the direction of prices. Various calculations can be applied to these values to fine-tune their signals. In this feature on internal indicators, we will examine the more useful and popular methods of measuring market breadth, from volume to point-and-figure indicators.

Next: Market Breadth: Volume Studies »


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