Advance-Decline Index (A-D Index)

What is Advance-Decline Index (A-D Index)?

In essence, Advance-Decline Index (A-D Index) is a reliable technical analysis tool that denotes the overall difference between the number of declining and advancing security prices. This index is deemed one of the handiest indicator of overall market movement at any given time.

Advance-Decline Index is primarily used to detect bearish or bullish trend in the stock market wherein one divides the total quantity of traded shares that have grown in price by those that have witnessed a fall. For example, if 300 shares have risen and 150 declined on a given day, the A-D index stands at (350/150=) 2.Ads by Google

In case the market is up but the total number of declining stocks is more than that of advancing ones, it’s an indication of the market losing its breadth. Similarly, if the advancing stocks outnumbered declining stocks, the market can be presumed to be healthy.

Usually, increasing values of advance:decline can be utilized for confirming the possibility of an upward trend that is likely to continue. In the event the market is up, but in the presence of more declining issues compared to advancing one, then it can well be taken as a sign that the market may soon change direction.

Advance-Decline Index (A-D Index) A useful tool for detecting bullish or bearish trend in the stock market in which one divides the number of traded shares which have risen in price by those which have fallen. For example, if 200 shares have advanced and 100 declined on a particular day the A-D index is 2. Numbers more than 1 indicate a bullish trend and less than 1 a bearish trend.

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. If the number of advancing issues are dominating the declining issues and the market is then said to be healthy. If it is falling, then the market is not healthy.

Edited and Updated 2nd January 2014

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