Market Strength: Advancers to Decliners
  1. Market Strength: Introduction
  2. Market Strength: S&P 500 Futures
  3. Market Strength: Advancers to Decliners
  4. Market Strength: Relative Strength Index and Arms
  5. Market Strength: Oil and Bonds
  6. Market Strength: Conclusion

Market Strength: Advancers to Decliners


The advance/decline line (A/D) is a technical analysis tool and is considered the best indicator of market movement as a whole. Stock indexes such as the Dow Jones Industrial Average (DJIA) only tell us the strength of 30 stocks, whereas the A/D line provides much more insight. The formula is quite simple: it is the ratio between advancing stocks and declining ones. If the markets are up but there are more declining stocks than advancing ones it's usually a sign that the markets are losing their breadth or momentum. If the number of advancing issues are dominating the declining issues, the market is said to be healthy.

Unlike the S&P futures contract, this indicator is not necessarily short term. Looking at the A/D line (not just the advance decline ratio) shows us the cumulative trend of advancers to decliners over a particular period of time. Most of the time the stock market does not turn around in an instant. Instead, the markets shift slowly, just as economic, business and market cycles would. This is why the general overall trend of the A/D line is important when determining the strength of the market.

Even so, the advancers to decliners is a tool and not a crystal ball. Sudden market shocks that result from interest rate movements, war, or other drastic events can't be detected by the A/D.

Market Strength: Relative Strength Index and Arms

  1. Market Strength: Introduction
  2. Market Strength: S&P 500 Futures
  3. Market Strength: Advancers to Decliners
  4. Market Strength: Relative Strength Index and Arms
  5. Market Strength: Oil and Bonds
  6. Market Strength: Conclusion
RELATED TERMS
  1. Advance/Decline Index

    A technical analysis tool that represents the total difference ...
  2. Advance/Decline Line - A/D

    A technical indicator that plots changes in the value of the ...
  3. Advances And Declines

    The number of stocks that closed at a higher price than the previous ...
  4. McClellan Oscillator

    A market breadth indicator that is based on the difference between ...
  5. Breadth of Market Theory

    A technical analysis theory that predicts the strength of the ...
  6. Toraku Index

    A technical indicator that compares the number of advancing stocks ...
RELATED FAQS
  1. What are the main signals traders use from an Advance/Decline ratio?

    Find out how traders and technical analysts employ the Advance/Decline ratio, and what values are considered important trading ... Read Answer >>
  2. Why is the Breadth Indicator useful for tracking the overall economy?

    See how analysts might use technical breadth indicators to judge the health of the economy as a whole, and learn why one ... Read Answer >>
  3. What does it mean when financial news reports say that more issues were sold than ...

    This simply means that in a market, more stocks (issues) traded down for the day compared to the number of companies that ... Read Answer >>
  4. Why is it important for traders and investors to follow market indicators?

    Learn about market indicators such as the Advance/Decline Index and market breadth. Discover why these indicators are so ... Read Answer >>
  5. What are the most common market indicators experienced traders follow?

    Take a look at some of the most popular market indicators used by technical analysts, including the advance/decline line ... Read Answer >>
  6. Where can I find all of the stocks in the Dow Jones Industrial Average?

    The best place to find a list of all thirty stocks included in the Dow Jones Industrial Average (DJIA) is the "Historical ... Read Answer >>

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