Advance Decline Line Indicator Explained Simply & Understandably. // AD A/D A-D breadth nyse strategy tutorial basics david moadel
welcome to looking at the markets with David Modell today I wanted to introduce
to you the ad line which is the advanced decline line it's an indicator so let's
learn about it the ad line or advanced decline line it measures the breath of
participation in the stocks in an index such as the S&P 500 the Nasdaq the Dow
the New York Stock Exchange composite index and so on in other words when the
market goes up is it because a lot of stocks are actually going up and that's
broad participation or is it because only a few stocks are going up a lot
while most stocks aren't going up at all and that would indicate a lack of broad
participation in a healthy and sustainable market it's going up because
most of the individual stocks are advancing or going up not just because a
few stocks are carrying the market higher so let's take a look at the
formula for the advanced decline line they take the number of advancing stocks
they subtract the number of declining stocks and then they add that number to
the previous periods advanced decline line number so basically you get a
running total because you're taking the number of advancers and subtracting the
number of decliners and adding this to yesterday's numbers so it's a running
total when the advanced decline line is going up that indicates that more stocks
are advancing and when the advanced decline line is going down that
indicates that more stocks are declining if the market is going up but the
advanced decline line is going down that is a divergence and could be a bad sign
for the markets you can get you can use it as not your only indicator but you
can get a feel for which way the market might be headed all right so this is
stockcharts.com and what I did was I plotted for the New York Stock Exchange
composite index I put the New York Stock Exchange
composite index itself here at the bottom and then I put the advanced
decline line for the New York Stock Exchange composite index and green above
it right here alright so but also as a reference I put the the index itself
down here in black and we can compare the two and this is for the previous six
months the past six months and as we can see they've pretty much been moving in
tandem moving together I don't see any particular divergences in the past six
months so when they're moving together that's kind of business as usual things
are behaving pretty and normally what I would be looking at for a warning sign a
possible warning sign might be if the stocks or the index itself if the market
was going up with higher high as higher lows that kind of thing or just steadily
going up and meanwhile if the advanced decline line was going down at the same
time if we add this line going up and then the advanced decline line going
down then that might indicate to me that mmm not a lot of stocks are
participating in the rally and so that's not broad participation and that could
be a warning sign so that's something to look out for and it could be the
opposite way to if you have the index or the market itself going down and
meantime at the same time if the if the advant advantage off the same exact time
that might indicate that there could be a turnaround in the making because that
would mean that more and more of the stocks in the index were advancing and
that could lead to the index itself the market itself advancing in the near
future possibly but once again please don't use this as your only indicator
use your common sense do your own research and feel free to use a number
of indicators for formation alright so that is a basic
introduction to the advance decline line the ad line I hope it was helpful to you
feel free to check out all my videos and subscribe to my youtube channel if you
have not done that already I appreciate it and I hope you'll give this video a
thumbs up on YouTube and leave a comment and if you need help with indicators
trading investing putting together a trading plan or an investing plan
because you really need to have one you can contact me anytime my email address
is David Modell that's M Oh a de L at gmail.com thanks a lot I really
appreciate it and I'll talk to you again soon