Zweig Breadth Thrust Indicator – How To Measure Market Breadth

Last Updated on April 19, 2022 by Quantified Trading

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 of the Zweig Market Breadth Thrust

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

As you can see, the Zweig Breadth Thrust Indicator goes up and down in rapid moves.

Does the Zweig Breadth Thrust Indicator work?

Let’s test the indicator as Zweig recommended. We test based on the following criteria and use SPY as a proxy for the S&P 500:

  1. Today’s reading must be at least 0.615.
  2. At any time during the last ten days, the reading must have been less than 0.4.
  3. If 1 and 2 are true, we buy the close and sell x days later.

As you might have already imagined, the buy signal doesn’t happen often: Since the year 2000 we have only witnessed 20 observations, some of the signals “overlapping” or happening very close to each other.

The table below shows the results when we exit a trade (time stop) after 5 to 50 days with 5 days intervals (we like to optimize in trading to get a better understanding of the results):

The first row shows the number of days when we exit our position. It’s ten trades and all trades are profitable  – the ones holding for the longest time are the most profitable.

The few trades make the setup for most traders pretty uninteresting, we would assume.

Let’s test Zweig Breadth Trust Indicator as an oversold and overbought indicator

Let’s test by going long the S&P 500 when the Zweig indicator is below 0.4 and sell when it crosses a higher reading. Unfortunately, no matter what we tested we couldn’t come up with anything that looked promising. We even tested by changing the length of the moving average of the indicator, but to no avail.

However, if we use the Zweig Breadth Thrust Indicator as an indicator together with another indicator we get some really good results:

The number of trades is 266, the average gain per trade is 0.73%, the win ratio is 77%, the profit factor is 2.55, and the max drawdown is 23%. We don’t want to publish the strategy because we might consider making it a Trading Edge for our subscribers:

Amibroker and Tradestation code

If you would like to know how to code the Zweig Breadth Thrust indicator in Amibroker and Tradestation, you can order the code and get access to all our free trading strategies:

Summary of Zweig Breadth Thrust Indicator:

We have rarely succeeded in backtesting market breadth indicators. The original signals of the Zweig Breadth Thrust Indicator seem to work, but it generates very few trades. However, combined with other indicators it can work nicely.

Likewise, overbought and oversold values don’t seem to be very useful unless we add a second variable.

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