Zweig Breadth Thrust Indicator Trading Strategy- How To Measure Market Breadth

Zweig Breadth Thrust Indicator is a market breadth indicator that helps you understand the internal strength of the market, at least that’s what the theory says. There are many breadth indicators – among them the Zweig Breadth Thrust Indicator (one of many).

The best way to measure market breadth is by looking at the number of advancers and decliners. This article looks at The Zweig Breadth Thrust Indicator and shows you how you can use the ratio between advancing and declining stocks to make an indicator. Does the Zweig Market Breadth Thrust Indicator work? We backtest Zweig Breadth Thrust Indicator.

What is the Zweig Market Breadth Thrust?

It’s an overbought/oversold indicator that oscillates up and down and is applied to the stock market.  The indicator is named after its inventor – Martin Zweig. Mr. Zweig (1942 -2013) was an investor, advisor, and analyst and held a Ph.D. in finance. (The famous writer Jason Zweig is NOT related to Martin Zweig.)

To calculate the Zweig Market Breadth Thrust Indicator you need access to daily advancers and decliners on the NYSE.

Breadth = AdvancingIssues / ( AdvancingIssues + DecliningIssues );

Zweig Breadth Thrust Indicator = A 10-day moving average of the breadth

We use a simple moving average in this article.

The formula creates an indicator that goes up and down, but Zweig was original when he looked at the indicator (as we understand how he interpreted readings):

A buy signal happens when it goes from an oversold market to overbought within any ten-day period. To be precise: An oversold position is a reading below 0.4 and an overbought position is when the breadth thrust indicator is above 0.615.

We assume that Zweig’s reasoning is that such a sudden change in market sentiment over a short period of time signals a bullish reversal.

A visual look at the Zweig Market Breadth Thrust

Let’s type the formula in Amibroker and see what the indicator looks like on the S&P 500: