What is the Advance-Decline Line
The Advance/Decline Line (“A/D”) is one of the most widely used indicator of market breadth. It is a cumulative total of the Advancing-Declining Issues Indicator, which shows the difference between stocks listed on the NYSE that advanced in price minus those declined. Compare to market index, it is most effective estimate of the stock market’s strength.
The trend of A/D line should be analyzed carefully with which we can get an idea about whether the market is moving upwards, downwards or following the current trend and how long the current trend will persist.
Chart. The DOW Jones Industrial Average and A/D Line
The calculation of A/D line is simple. For each individual day, subtract the number of stocks that has declined in price from the number of stocks whose prices have risen. This gives you the Advance-Decline (A-D). The A/D line is the cumulative sum of the A-D over time.
Because the A/D Line always starts at zero, the numeric value of the A/D Line is of little importance. What is important is the slope and pattern of the A/D Line.