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The Advance/Decline Ratio is a Market Breadth indicator. The reason it is called Market Breadth indicator is that it uses the number of Advancing and Declining stocks in its formula. The number of advancing stocks is the number of stocks that advanced or increased in price in a trading day. The number of declining stocks is the number of stocks that declined or decreased in price in a trading day.
The Advance Decline Ratio is simply the number of advancing stocks divided by the number of declining stocks. The result is a value that is never lower than zero (ratio). A value that is equal to one means that the number of advancers is equal to the number of decliners. A value higher than one means that more stocks are advancing than stocks that are declining and a value lower than one means that more stocks are declining than stocks that are advancing. Like the advance and decline values, this indicator values move very quickly and thus it is better to use a moving average to smooth the time-series.
This Advance Decline Ratio composite uses advance and decline data retrieved by the following item Advance-Decline-Unchanged issues for NYSE, AMEX and NASDAQ. The advance values are the sum of the number of advancing stocks in the American Stock Exchange, the NASDAQ and the New York Stock Exchange. The decline values are also the sum of the values of these three exchanges.
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.
