Business, Legal & Accounting Glossary
The Advance-Decline Index is an indicator that represents the total difference between the number of advancing and declining security prices for a given stock exchange. Typically, the advance-decline figures come from the NYSE (or Nasdaq) on a daily basis (see Yahoo advance decline). When plotted on a chart this indicator is known as the Advance-Decline Line.
The Advance/Decline Index is calculated by accumulating the difference between the number of advancing issues and the number of declining issues over time.
When more stocks are advancing than declining, the Advance-Decline Index moves up indicating stock market strength. Conversely, when more stocks are declining than advancing, the Advance-Decline Index trends down, indicating stock market weakness.
Note that the number of stocks trading on a particular market varies over time. Thus there is no consistent maximum or high value. By studying the trend of the Advance-Decline Index it can be established whether the market is trending, and how long the current trend has prevailed.
Another way to use the Advance-Decline Index is to look for a divergence between the stock market index and the Advance-Decline Index. Often, an end to a bull market occurs when the Advance-Decline Index trends sideways or down while the stock market index is still making new highs.
A divergence between the Advance-Decline Index and the stockmarket index often predicts trend change.
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This glossary post was last updated: 22nd March, 2020 | 3 Views.