When day trading, it is very important to have your finger on the pulse of the market throughout the trading session. Over the years, I have experimented with several methods of accomplishing this goal. None have worked as well as the Breadth Analysis methods explained in this video.
But first, what is Market Breadth and why should we care? Market Breadth is a technical analysis method to get a feel for the direction of the overall market. Instead of looking at just whether the market is going up or down, market breadth is analyzed by looking at the number of companies advancing vs. the number declining. Market breadth positive when more companies are moving up than are down, suggesting that the bulls are probably in control of the momentum. On the other hand, when there are more declining securities, it is often taken as bearish momentum.
Breadth Analysis is not difficult. That said, this simple task is very valuable and rarely discussed in trading communities. The indicators used in this method of analysis are as follows:
- TRIN (Trader's Index), aka Arms Index - This can be charted on most platforms using ticker symbol "$TRIN"
- NYSE Advancing Issues - This can be charted on most platforms using ticker symbol "$ADVN"
- NYSE Declining Issues - This can be charted on most platforms using ticker symbol "$DECN"
- Four Grid Intraday Chart of the Four Main Indices - Large Caps via Dow 30 (/YM), Mid Caps via S&P 500 (/ES), Small Caps via Russell 2000 (/TF), Technology via Nasdaq 100 (/NQ)
There are times you will find the first three breadth indicators leading the market by a minute or two, in which case you can position yourself short or long ahead of the broad market move if you catch the discrepancy in time. During sessions where these indicators are in line or slightly lagging the broad market, it is still very useful to track due to the clarity it provides in relation to the intraday market environment.
Keep in mind Breadth Analysis is only useful from an intraday time frame. We use these methods everyday inside TickerTank's Live Trading Room, TickerTV, when day trading Equities & Futures. I have found Breadth Analysis to be exceptionally useful when trading the major indice Futures listed above, or ETF's such as DIA, SPY, IWM, & QQQ.
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