The Zweig Breadth Thrust (ZBT) is a technical indicator developed by Dr. Martin Zweig, an influential market technician.
This indicator is used to identify potential trend reversals, specifically the start of a strong bullish market phase.
The Zweig Breadth Thrust is based on the breadth of the market, which is the number of advancing stocks compared to the number of declining stocks.
What is the Zweig Breadth Thrust?
The Zweig Breadth Thrust is derived from the ratio of advancing stocks to the total number of advancing and declining stocks on the New York Stock Exchange (NYSE).
The indicator is calculated using a 10-day exponential moving average (EMA) of this ratio.
Dr. Martin Zweig created the ZBT to capture significant shifts in market sentiment, which could signal the start of a powerful bullish trend.
According to Zweig, a buy signal is generated when the ZBT moves from a level below 0.40 (40%) to a level above 0.615 (61.5%) within a 10-day period.
This rapid and substantial change in market breadth indicates that a strong bullish phase will likely emerge.
How does the Zweig Breadth Thrust work?
The ZBT is calculated using the 10-day exponential moving average (EMA) of the ratio of advancing issues to the sum of advancing and declining issues on the New York Stock Exchange (NYSE).
The indicator generates a buy signal when it moves from a level below 0.40 (40%) to a level above 0.615 (61.5%) within a 10-day period.
This rapid and significant change in market breadth suggests that a powerful bullish trend is likely to emerge.
How to Trade the Zweig Breadth Thrust
To use the Zweig Breadth Thrust, follow these steps:
- Calculate the ratio of advancing stocks to the total number of advancing and declining stocks on the NYSE.
- Apply a 10-day exponential moving average to this ratio.
- Monitor the ZBT value and look for a buy signal, which occurs when the indicator moves from a level below 0.40 to a level above 0.615 within a 10-day period.
When the Zweig Breadth Thrust generates a buy signal, consider taking long positions or increasing your exposure to equities, as this could indicate the beginning of a strong bullish trend.
However, it’s important to remember that no indicator is perfect. The Zweig Breadth Thrust should be used in conjunction with other technical and fundamental analysis tools to confirm the market direction.
Why is the Zweig Breadth Thrust important?
The Zweig Breadth Thrust is considered an important technical indicator due to its ability to identify major market trends and potential trend reversals.
While the ZBT is relatively rare, the indicator has generated only a few signals in the past several decades, but these signals have been associated with the start of significant bull markets.