Advance/Decline Line (A/D)

The advance/decline line (A/D) is a technical indicator that plots the difference between the number of advancing and declining stocks on a daily basis. The indicator is cumulative, with a positive number being added to the prior number, or if the number is negative it is subtracted from the prior number.

KEY TAKEAWAYS

• The advance/decline line (A/D) is a breadth indicator used to show how many stocks are participating in a stock market rally or decline.
• When major indexes are rallying, a rising A/D line confirms the uptrend showing strong participation.
• If major indexes are rallying and the A/D line is falling, it shows that fewer stocks are participating in the rally which means the index could be nearing the end of its rally.
• When major indexes are declining, a falling advance/decline line confirms the downtrend.
• If major indexes are declining and the A/D line is rising, fewer stocks are declining over time, which means the index may be near the end of its decline.

The A/D line is used to show market sentiment, as it tells traders whether there are more stocks rising or falling. It is used to confirm price trends in major indexes, and can also warn of reversals when divergence occurs.

The formula for calculating the Advanced/Decline Line (A/D) is given by the expression below.