Business, Legal & Accounting Glossary
The Advance/Decline Line is possibly the most popular market breadth indicator. It is a cumulative total of the Advancing-Declining issues for a given stock exchange (usually the NYSE). Note that the number of stocks trading on a particular market varies over time. Thus there is no consistent maximum or high value. When compared to the market index movement, the Advance/Decline Line has proven to be an effective gauge of the stock market’s strength.
The advance/decline line is a technical indicator used to graph the difference between the number of advancing stocks and the number of declining stocks for a given day. The advance/decline line goes up if this difference is positive. The advance/decline line goes down if the difference is negative. Therefore, a rising advance/decline line indicates a bullish market, while a declining advance/decline line indicates a bearish market. Typically, the advance/decline line is used to evaluate short-term trends as opposed to trends over several years. Many traders use the advance/decline line to validate trends in the market and their likelihood of continuing. If markets are up but the advance/decline line is falling, traders view this as a signal that the market may soon reverse direction. Also, if markets are up and the advance/decline line is rising, this is an indication of a continuing robust market.
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This glossary post was last updated: 23rd March, 2020