The number of stocks that increased in value compared to the number of stocks that decreased in value
Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.
What is the Advance Decline Ratio?
The advance decline ratio (ADR) is a technical indicator used to assess stock market sentiment. The ratio compares the number of stocks that increased in value to the number of stocks that decreased in value. In other words, the ADR compares the number of stocks that rose in price versus the number of stocks that declined in price.
Formula for the Advance Decline Ratio
The formula for the advance decline ratio is as follows:
Where:
- Number of Advancing Stocks refers to the number of stocks that increased in value; and
- Number of Declining Stocks refers to the number of stocks that declined in value.
Note: The ratio can be used for any desired timeframe. For example, a trader can use the ADR over a one-day period, a one-month period, or a one-year period.
Example of the Advance Decline Ratio
An investor is looking to determine the market sentiment on a specific date. To do so, the trader gathers the information shown below. Assume that the stocks shown below are representative of the market. What is the advance decline ratio?
With the nine stocks above, eight stocks increased in value while one stock decreased in value. As such, the advance decline ratio is 8 / 1 = 8.
Interpreting the Advance Decline Ratio
The advance decline ratio can be looked at on a trended basis or by itself.
1. On a trended basis
Looking at the advance decline ratio on a trended basis provides an indication as to whether the market is expected to show a bullish or bearish trend. A ratio that is increasing over time signals a bullish market trend while a ratio that is declining over time signals a bearish market trend. For example, consider the ADR over a 10-day period (the ratio is taken once a day):
Although the ADR dipped on days four and five, the 10-day trend of the ratio points upwards. As such, to an investor, it may signal bullish momentum.
2. By itself
Looking at the advance decline ratio by itself provides an indication as to whether the market is oversold or overbought. A ratio that is relatively high signals an overbought market while a ratio that is relatively low signals an oversold market. For example, assume the 15-day moving average ADR was 1. The next day, the ADR was 4.3. As such, the ratio is high relative to the 15-day moving average and signals an overbought market.
It is important to keep in mind that it is uncommon for traders to use the ADR as the sole technical indicator when making trading decisions. The ratio should be used in conjunction with other technical indicators and fundamental analysis when forming a trading decision.
ADR in the News
The number of advancing stocks, declining stocks and unchanged stocks for major U.S. indices can be found on The Wall Street Journal.
For example, on August 5, 2019, U.S. President Trump accused China of manipulating its currency by weakening the yuan to make Chinese exports cheaper. On that day, using the information provided by The Wall Street Journal, the ADR for the New York Stock Exchange (NYSE) was 0.1057 (288/2,724).
More Resources
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
FAQs
If the ratio is greater than 1, it indicates that more stocks are advancing than declining. This is a bullish signal. On the other hand, if the advance-decline ratio is less than 1, it means more stocks are declining, which is a bearish signal.
How do you calculate advance decline? ›
It compares the number of stocks that closed higher against the number of stocks that closed lower than their previous day's closing prices. To calculate the advance-decline ratio, divide the number of advancing shares by the number of declining shares.
How do you calculate decline ratio? ›
Suppose we have a stock market index of 100 stocks, with 60 stocks advancing and 40 stocks declining. To calculate the ADR, we would divide the number of advancing stocks (60) by the number of declining stocks (40), resulting in a ratio of 1.5.
How do you calculate ADR ratio? ›
2. Calculate the Advance/Decline Ratio (ADR) Based on A Trend. Calculating the ADR based on the trend provides insights into momentum and participation. The ADR is calculated by dividing the number of advancing stocks by the declining stocks on a specified exchange for a set period, typically daily.
What is the 10 day advance decline ratio? ›
The 10-day advance/decline line is a technical indicator that allows investors to get a measure of the average number of daily advancers minus decliners within an index or specific sector over the previous ten trading days.
What is the ADR indicator used for? ›
Many traders set profit targets near the ADR indicator levels and choose not to trade when the price approaches the remaining 20% of the ADR. In fact, the ADR indicator shows how many points, on average, the price of an asset can change per day by analyzing past performance.
What is the advance decline percentage? ›
Advance Decline Percent, is a breadth indicator that takes the net difference between the Advances and Declines and expressed as a percentage against the total number of constituents of an index for which the advance decline percent is calculated.
What is the S&P 500 advance decline line? ›
The advance/decline line (or A/D line) 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.
What is the NYSE advance decline ratio? ›
The Advance / Decline Ratio shows the ratio of advancing issues to declining issues. It is calculated by dividing the number of advancing issues by the number of declining issues. A moving average of the Advance / Decline Ratio is often used as an overbought/oversold indicator.
How do you read an advance-decline line? ›
The advance/decline index is a market breadth indicator. It represents the cumulative difference between the number of advancing and declining stocks within a given index. A rising A/D index value suggests that the market is gaining momentum; a falling value suggests that the market may be losing momentum.
This indicator allows you to determine the percentage deviation of the price from its average value over a certain period of time.
What is the average offer decline rate? ›
In the United States, 17.3 percent of job offers—over 1 in 6—are rejected, according to Glassdoor data, reflecting a steady increase in offer rejection rates over the last few years. So even when employers find qualified candidates, it's often difficult to convince candidates to accept offers.
What is the advance-decline volume indicator? ›
The AD Volume Line is a breadth indicator that reflects buying and selling pressure in large-caps, which are the volume leaders on the major exchanges. A rise in the AD Volume Line shows more money flowing into advancing stocks than declining stocks. This also provides a means to quantify total volume.
How do you calculate daily ADR? ›
The first step in calculating ATR is to find a series of true range values for a security. The price range of an asset for a given trading day is its high minus its low. To find an asset's true range value, you first determine the three terms from the formula.
How do you calculate ADR and arr? ›
ADR is calculated by dividing room revenue by rooms sold. The metric is of course applicable for any currency.
What is a declining put call ratio? ›
A falling put-call ratio, or below 0.7 and approaching 0.5, is considered a bullish indicator. It means more calls are being bought versus puts. 2.
What is the advance decline ratio in Tradingview? ›
This indicator allows you to determine the percentage deviation of the price from its average value over a certain period of time.
