ADVANCE / DECLINE line indicator

ADVANCE / DECLINE LINE
Overview
The Advance / Decline Line ("A / D Line") is undoubtedly the most widely used measure of market breadth. It is a cumulative total of the Advancing-Declining Issues indicator. When compared with the movement of the market index (eg, the Dow Jones industrials, S & P 500, etc.), A / D line is shown as an effective gauge of the strength of the stock market.
Interpretation
A / D line is useful when measuring the overall market strength. When more stocks advancing than declining, the A / D Line moves up (and vice versa).
Many investors believe that, A / D Line shows market strength better than more commonly used as an index of the Dow Jones Industrial Average ("DJIA") or the S & P 500 index. By studying the trend of A / D line can be seen whether the market is on the rise or decline trend, if this trend is still intact, and how long the current trend has prevailed.
Another way to use the A / D line is to look for divergence between the DJIA (or similar index) and A / D line. Often, the end of the bull market can be forecast when the A / D Line begins to round over while the DJIA is still trying to reach new heights. Historically, when a divergence develops between the DJIA and the A / D line, DJIA is upright and went in the direction of A / D line.
A military analogy is often used when discussing the relationship between A / D line and the DJIA. The analogy is that trouble looms when the generals lead (for example, DJIA is making new heights) and soldiers refusing to follow (for example, A / D line fails to make new highs).
The DJIA was creating new heights during the 12 months leading to 1987 crash. During this same period, A / D line was unable to reach new highs. This type of deviation, the leading generals and soldiers refuse to follow, usually resulting in the withdrawal of the generals in defeat as they did in 1987.
Calculation
Because, A / D line always starts at zero, the numerical value of A / D line is of little importance. What is important is the slope and the model of A / D line.