Advance-Decline Ratio

The Advance-Decline Ratio is an oscillator that allows you to analyze the strength with which a market evolves. For a given market, it shows each day the ratio between the number of advancing securities and the number of declining securities.

Calculation Method

For a given market, a moving average is calculated over a certain period (usually short) to smooth out fluctuations in the following ratio.

R = Number of advancing securities / Number of declining securities

Example

Interpretation

The Advance-Decline Ratio is similar to the Breadth AD Indicator. The advantage of the "Advance-Decline Ratio" is that it remains constant regardless of the number of listed securities on the market.

The higher it is, the stronger the trend and the lower the probability of a correction, because a very large number of securities are involved.
Conversely, when it is low, it indicates an oversold market and therefore suggests a technical correction reaction.

Note

However, do not forget that markets appearing very oversold or overbought may remain in that situation for some time.

When using overbought or oversold indicators, it is prudent to wait for price confirmation of the reversal.