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The absolute breadth index, or ABI, is a market breadth indicator; it uses the number of advancing and declining stocks to measure the amount of volatility on US exchanges. This indicator does not take into account the price direction because it calculates the absolute value of the difference between the number of advancing stocks and the number of declining stocks. This result into a value that is always positive.
The absolute breadth indicator was developed by Norman G. Fosback, in his "Stock Market Logic" book. Generally, high absolute breadth index values lead to higher volatility, which in turn results in higher stock prices moves in the weeks to come. Norman G. Fosback found out that historically, high values of this index lead to higher prices in the next three to twelve months.
Absolute breadth index's author suggests using a variation of the ABI that consists of dividing the weekly ABI by the total number of issues traded.
This variation as well as the absolute breadth index values should be smoothed with a moving average to facilitate the analysis and the interpretation of the data.
The absolute breadth index data is associated to the following symbol '_ABSOLUTE_BREADTH_INDEX'.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
