What is market depth and breadth in stock market?

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What is market depth and breadth in stock market?
Several terms used in the financial market go with stock markets as well depth and breadth are some such terms. In finance, market depth that refers to quantity to be sold vs unit price is the order size that triggers change in market price by a given amount. In case of the market with high depth a high lot size is needed to change the price.

Similarly, in stock markets, depth of the market relates to the liquidity of a particular stock and its ability to maintain stability with respect to price levels despite huge trade volumes.

Stocks with low or poor depth will show sharp changes in price level in case huge buy or sell order is placed In contrast, a particular stock with comparably good depth will maintain price stability despite high trading volumes. And at the same time shall offer higher liquidity.

In stock market, market breadth is the technique used as part of technical analysis that determines the overall market direction. The technique analyzes the number of stocks that advance in comparison to the one that fall.

Positive market breadth is indicative of more number of companies heading northwards in terms of price levels in contrast to companies moving southwards. Further, the momentum is indicative of bull markets.

On the other hand, negative market breadth signifies decline in price levels witnessed by more number of companies in comparison to companies that witness price rise. The technique this way confirms a bearish momentum in the market.

More specifically, traders in the market look for the number of stocks that reached 52-week highs in contrast to that reacted by reaching at 52-week low levels. The data helps such traders and analysts to determine long term outlook as to whether bull or bearish run shall prevail in the market.

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Story first published: Thursday, January 16, 2014, 10:08 [IST]
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