debit-balance theory(redirected from Debit Balance Theory)
In technical analysis, a theory dealing with the measure of debts owed to a brokerage on margin accounts. A high debit balance indicates that large or important investors are buying on margin in greater amounts, which is thought to be a bullish indicator. Likewise, a low debit balance indicates that many investors are not buying on margin; this is thought to be bearish. Debit-balance theory assumes that investors thought to be "sophisticated" usually make wise investment decisions; not all analysts agree with this assumption. See also: Crowd theory, Credit-balance theory.
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The technical theory that holds that the level and change in brokerage account debit balances can be used to forecast market trends. A rise in debit balances is generally considered bullish because such balances result from the purchase of securities on margin by sophisticated investors. Compare credit-balance theory.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.