Advance-decline line
Also known as: A/D line
The advance-decline line is a market breadth indicator that tracks how many are rising versus falling on a given exchange or index, rather than looking at the index level itself. Each day, the number of declining is subtracted from the number of advancing , and that net figure is added to a running cumulative total, producing a line that moves up when more are gaining than losing and down when the opposite is true.
The formula is:
Cumulative total + (Number of advancing - Number of declining )Investors watch the advance-decline line mainly to judge whether a move in a major index reflects broad participation across the market or is being driven by a small number of large . If an index like the is climbing to new highs while the advance-decline line is flat or falling, it can mean the rally is narrow, propped up by a handful of heavily weighted companies while most in the index are declining. That kind of divergence is often treated as a warning sign that a rally has weaker underlying support than the headline index number suggests.
Because it is a breadth measure rather than a price measure, the advance-decline line is generally used alongside an index chart rather than for an individual . A healthy with broad participation typically shows the advance-decline line rising in step with the index, while a weighted index being carried by only a few winners tends to show the two diverging.