Investing & Trading

Advance Decline Cumulative Line Strategy

By Samantha Baltodano
Reviewed by Timothy Yslava

 

TL;DR:

 The advance decline line is an investment strategy that plots the number of increasing stocks to the number of decreasing stocks. It is a trend indicator.


 

What Is the Advance Decline Cumulative Line?

 Key terms:


  • Advance: an increase in stock price
  • Decline: a decrease in stock price


 The advance decline line is a technical indicator that plots the total number of stocks that increased in value to the total number of stocks that decreased in value.


It can confirm current price trends at points in time when the advance decline line and the stock price are trending in the same direction. It is a warning sign that trends are changing when divergence occurs - like what we saw in the accumulation distribution strategy.

 

How do I Calculate the Advance Decline Line?

The formula to calculate the advance decline values is:

 

A/D = Net Advances + (PA or 0)

 

Where:


  • Net Advances = Difference between daily number of increasing and decreasing stocks
  • PA = Yesterday’s Net Advance’s


Here’s a step by step guide to calculating the advance decline line:


  1. Sum the number of rising stocks, then sum the number of declining stocks.
  2. Subtract the declining stocks from the rising stocks. This is your Net Advances.
  3. If this is day one calculating the Net Advances, you're done here.
  4. On the next day, calculate your Net Advances. If today’s Net Advances is positive, then add it to yesterday’s Net Advances. if today’s Net Advances is negative, then subtract it from yesterday’s Net Advances.
  5. Repeat steps 1-4 every day.

 

Summary

  • Advance Decline Rate = Total Increasing Stocks - Total Decreasing Stocks
  • An increasing advance decline line and price line are a signal of a continued bullish market.
  • A decreasing advance decline line and price line is a signal of a continued bearish market.
  • The trend will change when the advance decline line and the price line are not moving in the same direction.

 

Advance Decline Cumulative Average is one of many strategies that Archaide automates. For a full list of strategies and studies available click here.


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