The Advance Decline Line is based on the advances and declines of stocks in the index basket and is calculated as a running total of the advancing issues (stocks) minus the declining issues:
A/D Line = (Advancing Stocks - Declining Stocks) + Previous Period's A/D Line Value
In technical analysis the Advance/Decline Line is used to confirm the strength of a current trend and the possibility that it will reverse. The Advance/Decline Line moves lower when there are more declining issues than advancing issues and moves up when there are more advancing issues than declining issues. This concept allows you to spot changes in the supply and demand.