Wednesday, July 21, 2010

Breadth Trading - ONLY thing you would ever need

What is breadth trading?

If you just follow one single stock or a sector, it is extremely likely that you will be whipsawed. Because at any given point in time there will be "some" sector or "some stock" that is going against the entire market trend. Hence, to reduce further whipsaws, you should inculcate "breadth trading".

Instead of just following one stock or sector, follow the bullish/bearish signs across ALL the sectors. One single stock or sector can never move the entire market. It needs some company. Hence, the bottom line is that there ought to be at least 2-4 sectors that are "outperforming" other sectors.

How do you figure out breadth? You can always just monitor ALL the sectoral ETF's on a carpet. OR, you could use Bullish percentage index on

BP as it is referred, is a culmination of ALL the bullish Point and Figure charts for a specific sector/index.

For example, $BPSPX is S&P 500 Bullish percentage index. What that means is, it shows how many stocks in S&P 500 are showing bullish Point and figure charts. Point and figure charting is completely different from candlesticks and you can read more about it on itself. What we are trying to address here is "breadth".

If BP rises and continues to do so, it is undoubtedly a confirmation that the trend is UP. If BP is NOT rising or struggling hard, that literally means MORE stocks in that umbrella are broken beyond repair and are unable to reverse their course.

Always check BP for confirmation of whether a specific move is being supported by the entire market participants or not. Market markers can pump ES/futures/spy and move the market if they like, but if there is NO support behind them, then market will go nowhere but where the majority is.

Put it in simple terms. Just because you have the BEST soccer player in the world in your team doesn't mean you will always win. Why? At the end of the day you would need support from ALL the other players to make it happen. Likewise, just because one stock or sector makes new highs doesn't mean it will take the entire market to new highs.

Breadth trading is something that i learned the hard way. And am very comfortable sticking to it.

Very simple explanation of BP, can be found Here.



  1. Is this what Mccellan oscillator tells? Breadth?

  2. do you know what happened to DRV yahoo message board, it is gone since last night.

  3. I don't goto message boards. So dunno... :-)

  4. It is close. But BP is completely different. It bases it's results on P&F charts. They are much more reliable and remove lot of noise as we see in Candlestick and other charts.

    BP is the best gauge of Breadth IMHO as it really gets the actual bullish stocks %age as opposed to relying on moving averages such as Mccellan oscillator.

  5. well, actually i got the link to your blog from there. When i open the link you provided to the BP, it gives you the number of components, so we need to calculate the index based on the formular in the top, right? 730/1837 = 39%. so what does it interprete?

  6. Have you published a note about how to setup the charts to mimic your Indicator?

  7. You can actually chart it. Chart it as if it were a stock and figure it out yourself if you would be a bull or a bear.

    What it means is 39% of the stocks in that sector/index are showing bullish signs.

  8. NO. :-) It is not straight forward and requires a lot of backend work.

  9. great post! thanks. Do you have any articles/links or books to point us in the right direction so that we can learn . . .

    thanks again and love the blog

  10. Unfortunately, the context of this particular article does not have any books to support it. Why? Because books are written ONLY on topics that are already known to everyone and everyone already believes they work. :-)

    Breadth is a unique way of looking at the SAME thing that is visible to everyone else.

    Hope this helps and thanks 4 the comments.