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The plurality index is a market breadth indicator based on the number of advancing and declining issues. These numbers must be downloaded first before using this indicator: Advance-Decline-Unchanged issues for NYSE, AMEX and NASDAQ. Note that the plurality index uses two ticker symbols created by the previous downloader: ^ADVANCE-ISSUES-NYSE and ^DECLINE-ISSUES-NYSE.
The plurality index is always positive because it is based on the sum of the absolute values of the difference between the number of advancing and declining issues of the New York Stock Exchange. That sum is calculated for the previous 25 bars.
Given the structure of the stock markets and their tendency to rise slowly and decline rapidly, the plurality index can be interpreted by considering that a high number of this indicator is often a sign of an imminent market bottom while a lower number is often a sign of an imminent market top. Long signals generated by this indicator are often more reliable than short signals. Signal levels are changing because the number of issues trading on the NYSE is also changing, so better backtest different levels and see which one works best. Or better, generate dynamic levels based on past performance.
The plurality index was developed by Paul L. Dysart. Paul was a pioneer in trading using different types of trading studies based on Volume. He also developed the Positive and Negative volume index indicators.
NB:
The indicator name is "PluralityIndex".
This indicator is based on stocks listed on NYSE. You can easily update it to account for NASDAQ and AMEX stocks too.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
