Advance Decline Ratio Definition
The advance/decline ratio (A/D ratio) shows the ratio of advancing issues to declining issues. The A/D ratio is similar to the advance/decline line, except instead of subtracting the advancing and declining issues, it divides these two inputs. The benefit of using the advance/decline ratio is that it is a constant number, versus the advance decline line, which will constantly trend higher as new stocks are added to the New York Stock Exchange. Below is the formula for calculating the advance decline ratio.
Advance Decline Ratio Formula
Advancing Declining Issues
Interpreting Advance Decline Ratio
Interpreting the advance/decline ratio can prove to be a difficult task. The ratio will move erratically and on quick glance it is a bit challenging to make clear observations about the health of the market. A popular technique is to place a moving average of the A/D ratio to assess the direction of the technical indicator. The average of the indicator will begin to oscillate back and forth and will provide clues as to whether the market is oversold or overbought. The A/D ratio will never have a negative value. Traders can use the following values for estimating the trend of the market:
- A/D ratio > 1.25 bullish
- A/D ratio is between 0 and 1, bearish to choppy market
- A/D ratio > 2 extremely bullish
Advance Decline Ratio Charting Example
Advance Decline Ratio
