What action should you take when the Bolton Tremblay Index ratio is greater than zero?

When the Bolton Tremblay Index ratio is greater than zero, it indicates a condition where the market shows relative strength or a positive trend. In this scenario, the recommended action is to add the square root of the ratio to the prior index value. This adjustment reflects an ongoing positive sentiment in the market, as the index is designed to account for changes in market conditions that suggest upward momentum.

Adding the square root of the ratio helps to moderate the impact of larger ratios while still acknowledging positive shifts in the index. This method of adjustment is critical in ensuring that numerical changes are proportionate to the market's strength, thereby providing a more accurate representation of current market conditions.

The other approaches, such as maintaining the same index value, subtracting from the prior index value, or calculating averages, do not adequately capture the necessary response to a positive shift indicated by a ratio greater than zero. These methods could lead to a misrepresentation of market sentiment, thus undermining the effectiveness of the Bolton Tremblay Index as a tool for market analysis.