Advance-Decline Line Calculation:
Starting at 0 (zero) accumulate the difference between advancing
issues minus declining issues within the composite Overview: The
Advance/Decline Line ("A/D Line") is undoubtedly the most widely
used measure of market breadth. It is a cumulative total of the
Advancing-Declining Issues indicator. When compared to the
movement of a market index (e.g., Dow Jones Industrials, S&P
500, etc) the A/D Line has proven to be an effective gauge of
the stock market's strength.
Interpretation:
The A/D Line is helpful when measuring overall market strength.
When more stocks are advancing than declining, the A/D Line
moves up (and vice versa).
Many investors feel that the A/D Line shows market strength
better than more commonly used indices such as the Dow Jones
Industrial Average ("DJIA") or the S&P 500 Index. By studying
the trend of the A/D Line you can see if the market is in a
rising or falling trend, if the trend is still intact, and how
long the current trend has prevailed.
Another way to use the A/D Line is to look for a divergence
between the DJIA (or a similar index) and the A/D Line. Often,
an end to a bull market can be forecast when the A/D Line begins
to round over while the DJIA is still trying to make new highs.
Historically, when a divergence develops between the DJIA and
the A/D Line, the DJIA has corrected and gone the direction of
the A/D Line.
A military analogy is often used when discussing the
relationship between the A/D Line and the DJIA. The analogy is
that trouble looms when the generals lead (e.g., the DJIA is
making new highs) and the troops refuse to follow (e.g., the A/D
Line fails to make new highs).
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