What is the Advance-Decline Percent?
The Advance/Decline PO (Percentage Oscillator) is an advanced version of the A/D Ratio. The A/D PO (the same as the A/D Ratio) enables us to measure and analyze advancing stocks in relation to declining stocks. Sometimes advance/decline numbers are reported as a ratio and it could be reported in a percentage as well.
The Advance Decline Percent could be interpreted in the same way as Advance Decline Ratio. It is based on AD ratio values but explains them in a percentage terms. The percentage scale is between -100% to +100%.
AD percent shows the amount of participation by the stocks in an index, as it is a breadth indicator. When an AD percent exceeds 70%, it shows widespread strength in an index because the majority of stocks are contributing to advances in the index. On the other hand, there is widespread weakness when AD percent falls below -70%.
The data fluctuates with up and down days, and creates a rather volatile chart. We can compare the positive and negative days to assess the ongoing degree of participation. Simple or exponential moving average could be used to create a PO (Percentage Oscillator).
Chart 2.XLK Technology Advance/Decline Percent
The formula for calculating the A/D issues ratio is:
A/D Ratio = Number of Advancing Stocks / Number of Declining Stocks
The negative aspect of this formula is that the Advance Decline Ratio has a logarithmic scaling from zero (when advances = 0) to infinity with the centre line at 1 (when advances = declines).
To avoid a situation in which the Advance Decline Ratio tends towards infinity, Advance/Decline Percentage Oscillator (A/D PO) has developed.
The above formula creates values that cannot be less than zero because it is a fraction (or ratio). A value of 3 means that three times as many stocks advanced as declined.
Any value less than 1 means more stocks declined than advanced. Because of the nature of fractions, the chart is more legible using a logarithmic scale.