Market Internals 002 – Breadth

The ‘King’

The Breadth Ratio is a volume ratio composed of volume flowing into up stocks versus volume flowing into down stocks.

The breadth ratio is expressed: Up Volume / Down Volume

This reading is important in relation to where it has been, especially where we are now compared to where we opened on the day.

For example:

If at 10:00 AM we have 10M shares moving up and 5M shares moving down, the resulting breadth ratio is 2:1 positive (10M/5M), twice as much volume is flowing into up stocks as down stocks.

If at 10:30 AM the market has sold off but we now have a breadth ratio of 3:1 positive, this is a signal that the markets are actually becoming stronger and it’s time buy the pullback, so look for a long setup.Breadth Numbers

The image above displays the NYSE and NASDAQ opening breadth numbers for the day (NBO). The current breadth reading is currently shown to the right (in red).

Here’s how to add the  Thinkorswim breadth box code to your charts.

Out of all four internals, the breadth ratio is considered the most important.

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About Tim Racette

Tim is a full-time trader in the futures and stock markets and founder of EminiMind.com. He is also a Chicago-land native, competitive mountain biker, adventurer, and ASU Sun Devil.

4 Responses to “Market Internals 002 – Breadth”

  1. Very interesting tool, thanks. One problem, you say “The Thinkorswim code to add this box to your chart can be found here.” but I don’t see it. Maybe you meant the word “here” to be a hyperlink. Please get back to me I’m very interested in implementing breadth into my strategy. Keep up the good work.

    Mirzet

  2. Can u explain how to read the breadth?

    • Sure Ben. Think of it like this… 1:1 means the same amount of volume is flowing into stocks moving up as stocks moving down. Positive breadth means more volume is flowing into up stocks and negative breadth means more volume is flowing into down stocks. The farther we get away from 1:1 the stronger the breadth. A reading outside 3:1 either positive or negative is a relatively strong reading. Often times on days where we open with a big gap you will see a reading of 10:1 or greater. Paired with the A/D Line, these two market internals are a great way to gauge the strength or weakness of the market.

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