What is the 'Toraku Index'

A toraku index is a technical indicator that compares the number of advancing stocks on the Tokyo Stock Exchange to the number that are declining. Dividing the two results in a ratio that is used by technical traders to determine the likelihood of a market correction. A market correction occurs when the stock market sees a reverse moment of a stock, bond, commodity or index by an at least 10 percent overvaluation adjustment.

BREAKING DOWN 'Toraku Index'

A toraku index is an indicator that would be classified as a market breadth indicator because it only incorporates the number of advancing and declining issues to determine the broad support of any given move. It is able to reveal the exact direction the traders are taking, with positive sentiments equaling increased purchasing and negative sentiments leading to more sales. Other types of breadth indicators include the advance-decline index, cumulative volume index, McClellan oscillator and Haurlan index.

Overall, breath indicators use mathematical formulas to measure advancing and declining security prices as part of market movement to derive the sentiment of the overall market. The formulas can reveal overall market sentiments as bullish or bearish.

Breadth indicators are mathematical formulas that measure advancing and declining issues to calculate the amount of participation in a market movement. By evaluating how many securities are increasing or decreasing in price, and how many trades investors are placing for these securities, breadth indicators can show whether overall market sentiment is bullish or bearish.

Advantages and Disadvantages of the Toraku Index

The toraku index, like other market breath indicators, don’t look at specific stocks or investments’ value. Instead, they work as an overall summary of the market as a whole. Thus, market breath indexes such as the toraku index can be helpful in getting a picture of the whole stock market and predicting trends and stock movement, but they may also have the disadvantage of leading to missed opportunities for individual stocks.

Indexes as a way to glean information about stock market trends were first introduced in 1896 by Charles Dow and very quickly, they changed how investors approached the stock market. Dow’s calculations helped himself and other leading investors measure what he thought of as the market’s tide going up or receding. Of course, the calculations used to determine the indexes of the stock market have since changed drastically to become more accurate and take into account individual stock movement and throw out outliers.

RELATED TERMS
  1. Breadth Indicator

    Breadth indicators are mathematical formulas that measure advancing ...
  2. Absolute Breadth Index - ABI

    The Absolute Breadth Index (ABI) is a market indicator used to ...
  3. Breadth of Market Theory

    Breadth of market theory is a technical analysis method gauging ...
  4. Advances And Declines

    Advances and declines refers to the number of stocks that closed ...
  5. Market Sentiment

    Market sentiment reflects the overall attitude or tone of investors ...
  6. Cumulative Volume Index - CVI

    The cumulative volume index, or CVI, is a momentum indicator ...
Related Articles
  1. Trading

    Market Breadth: A Directory Of Internal Indicators

    Discover the indicators that measure the force of the bulls and bears, telling you what a simple price chart cannot.
  2. Trading

    3 Key Signs Of A Market Top

    Learn the best ways to foresee market corrections and how to profit from them.
  3. Trading

    4 Key Indicators That Move The Markets

    Do you rely on indicators to make an investment move? Find out these key economic and market indicators to watch and react to market movements.
  4. Trading

    Using index futures to predict the future

    Want to know whether the stock market will open up or down? Learn about index futures and how they can help predict how the market will trade.
  5. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
RELATED FAQS
  1. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >>
  2. What are leading, lagging and coincident indicators?

    Leading indicators move ahead of the economic cycle, coincident indicators move with the economy, and lagging indicators ... Read Answer >>
  3. What does the S&P 500 index measure and how is it calculated?

    Learn about what exactly the S&P measures and why it's used by market participants as a tool to understand the broader stock ... Read Answer >>
  4. How do indexes determine which stocks are removed or added to them?

    Stock indexes are formed based on the kinds of stocks or financial securities they want to track. For example, the Standard ... Read Answer >>
Trading Center