Advance Decline Ratio

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The advance/decline issues ratio (AD issues ratio) is one of the most widely followed measures of market breadth; it can also be used as a measure of market strength (market momentum).

The formula for calculating the A/D issues ratio is simple:

The AD issues ratio is applied as follows:

1. Values higher than 1 show that more issues are presently advancing than declining; 
2. Values between 0 and 1 indicate that more issues are currently declining in price.

In the charts below, you can see that the AD ratio looks very much like the AD line; however, in contrast to the AD line, the AD ratio cannot be negative.

Chart 1. S&P 500 5-day intraday (one bar = 15 min)
Advance/Decline Issues Ratio versus Advance-Decline Issues Line

Most analysts prefer the A/D ratio as an indicator, because it is more amenable to comparisons than the A-D line. The A/D ratio has an absolute value that does not vary in function of the number of components being analyzed it remains constant, regardless of the number of stocks under consideration. This is a big advantage, especially when analyzing entire stock exchanges, where the number of traded issues changes constantly. The other key advantage of using the A/D ratio is that it easily allows comparisons among different indexes or stock exchanges. For instance, comparing the A/D ratios of the DJI and the NYSE is much easier than evaluating the A-D lines for the NYSE (which can range from 0 to over 3.600) and the DJI (it has a much smaller range: from 0 to 30).

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