If you’re an avid trader, you’ve certainly heard the term ‘Zweig Breadth thrust,’ but do you know what it is and why it’s so important? This article will explain the basics of the Zweig Breadth Thrust (ZBT) and how it can be used to identify important market turning points.
The ZBT is an indicator used to measure the level of market volatility. Developed by renowned market technician and financial writer Professor Martin Zweig, it was originally designed to determine when markets are exhibiting extremely wide swings – with large price movements that may lead to a potential reversal.
The Zweig Breadth Thrust indicator works by analyzing the relationship between volume and breadth in the market. It has three components: the ZBT score, the ZBT Advance/Decline (A/D) line and the ZBT signal. The score is calculated from the sum of the daily A/D lines for the past 30 days, and it reflects the total number of stocks that advanced and declined during that time. The higher the score, the more bullish the market is thought to be.
The ZBT Advance/Decline line is a plot of the difference between the number of advancing stocks and the number of declining stocks in the market. It is calculated by subtracting the number of losing stocks from the number of gaining stocks. If there are more advancing stocks than declining stocks, then the ZBT A/D is considered to be bullish.
Finally, the ZBT signal is a short-term measure of the market’s strength. It is calculated by comparing the closing prices of the last three weeks with the current week’s closing prices. If the closing prices of the last three weeks are above the current week’s closing price, then the ZBT is considered to be bullish.
In sum, the Zweig Breadth Thrust can be used to identify when a market is exhibiting high volatility and could be ripe for a potential reversal. While it can be a powerful indicator, it should be used as part of a larger strategy and not be relied on solely to make trading decisions. It is important to note that the ZBT does not predict future price movements and should not be used as a primary market indicator.