The Advance-Decline Ratio is an oscillator that can analyze the strength with which a market is changing. For a given market, each day it shows the ratio between the number of increasing values and the number of falling values.

Method of calculation

For a given market, we calculate the moving average over a certain period (usually short) in order to smooth fluctuations in the following ratio, R = Number of increasing stocks / number of falling stocks

Example

Interpretation

The Advance-Decline Ratio is similar to AD Breadth Indicator. The advantage of the Advance-Decline Ratio "is that it remains constant regardless of the number of listed securities market.
The higher it is, the more the trend is strong and the more likely a correction is low because a large number of values is concerned.
Conversely, when it is low, it indicates an oversold market and therefore suggests a technical correction.

Note

However, do not forget that markets which appear to be very oversold or overbought may remain in this situation for some time.

When using indicators of overbought or oversold, it is prudent to wait for the confirmation of the reversal by the price