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Zweig Breadth Thrust Indicator was created by Dr. Martin Zweig.
This indicator is 10-days moving average of the breadth ratio.
ZWT = Advances / (Advances + Declines)
Let us break down the above formula. What are advances and Declines?
Advances are nothing but number of scrips which are closed higher by any degree than yesterday’s close, Declines are nothing but the number of scrips which are closed lower than yesterday’s close by any degree.
ZWT = Advances (20) / (Advances (20)+ Declines (10))
So, for a given day, in a given Index, let’s take an example of Nifty50, out of the 50 constituents how many have closed higher than yesterday by any degree will be considered as advances and how many have closed lower than yesterday by any degree will be considered as declines. Lets say we’ve got 20 advances and 10 declines.
Breadth is 66.67% for that day, likewise, we need to find out the breadth for 10 number of straight days, and then we must take the average of the 10 days breadth ratio, to get the Zweig Breadth Thrust.
Martin Zweig used the word thrust in this indicator because as per his analysis, a bullish signal is given by this indicator when its reading moves to 61.5% and above from below the 40% reading. That 21.5% added from 40%, the sooner it goes above 61.5% from 40% and below the more the thrust is. It could take any number of days to go from below 40% to 61.5%.
Once if you see the Zweig Breadth Thrust’s reading touches 61.5% and above from 40% or below, a breadth thrust is seen and a bullish signal is generated for that index for which it is applied.
Zweig Breadth Thrust indicator is a bounded indicator, its scale is from 0% to 100%.
Let us see an example of Zweig Breadth Thrust for Nifty50. For the past two years.
Above is a daily timeframe candlestick chart of Nifty50 from 1st Jan 2021 to 13th June 2023, below which is the Zweig Breadth Thrust Indicator in green color and horizontal dotted lines crossing around 40, 50 and 61.5% levels.
Observe the above chart and the breadth indicator, you would be able to find the breadth thrust spots where the breadth thrust indicator crosses above 61.5% from 40% and below, once if it does that there is a significant about of days gap until it breaks below 40%.
The number of days, it stayed above 40% after breaking the 61.5% is a bull run period. Once if it breaks below 40% then wait for the another thrust. The above method is the only method of analyzing using Zweig breadth thrust indicators, various methods of interpretation from other methods can also be brought into it.