Technical Analysis, Studies, Indicators:
Advance/Decline Percentage Oscillator
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Description: technical analysis, breadth indicators,
stock market sentiment, charts, overbought, oversold, bullish, bearish
signals, analysis
There are a number of indicators (Breadth Indicators) in technical analysis
that are based on advance-decline data. The
Advance/Decline (A/D) Ratio
is one of the most popular and analyzed Breadth indicators. The Advance/Decline
PO (Percentage Oscillator) is an advanced version of the A/D Ratio. The A/D PO
(the same as the A/D Ratio) permits you to measure and analyze advancing stocks
in relation to declining stocks.
The formula for calculating the A/D issues ratio is:
The negative aspect of this formula is that the A/D Ratio has a logarithmic
scaling from zero (when advances = 0) to infinity (when declines = 0) with the
center line at 1 (when advances = declines). This should not be a problem when a
trader analyzes advancing and declining stocks of the NYSE. However, in the case
of a small basket of stocks, such as DJI (Dow Jones Industrials), we often
encounter a situation where the A/D Ratio reaches zero or infinity (either the
declines or advances are equal to zero).
To avoid a situation in which the A/D Ratio tends towards infinity, our team has
developed and implemented a new technical indicator, the
Advance/Decline Percentage Oscillator
(A/D PO), in September, 2008. We are the first to introduce this indicator to
the world and at present are the only ones to provide this indicator. As a
result, we consider ourselves to be this indicator's developers.
The A/D PO has the same meaning as the A/D Ratio and analyzes the ratio of
advances to declines. The difference between the A/D PO chart and the A/D Ratio
chart (with similar chart settings) is barely noticeable. Yet, it allows you to
analyze the A/D Ratio results in a percentage scale of -100% to +100%.
Below are formulas used in A/D Percentage Oscillators.
Advance/Decline Issues Percentage
Oscillator:
| A/D Issues PO = |
Advance Issues + Decline Issues
|
x 100 |
Advance/Decline Volume Percentage
Oscillator:
| A/D Volume PO = |
Advance Volume - Decline Volume
Advance Volume + Decline Volume
|
x 100 |
Advance/Decline Momentum Volume Percentage
Oscillator:
| A/D Momentum Volume PO = |
Advance Momentum Volume - Declined Momentum Volume
Advance Momentum Volume + Declined Mom Volume
|
x 100 |
New Highs/Lows Percentage
Oscillator:
| H/L PO = |
New Highs - New Lows
New Highs +
New Lows
|
x 100 |
From the formulas above you see that
-
if Declines = 0, A/D PO = 100%
-
if Advances = 0, A/D PO = -100%
-
if Advances = Declines, A/D PO = 0
-
when advances are dominant, PO is positive and when declines are dominant PO
is negative
Below are the chart of the A/D Issues Ratio and the A/D PO.
Chart 1:
DJI index - A/D Issues Ratio and A/D issues PO
As you see, the Advance/Decline Percentage Oscillator looks exactly the same
as the Advance/Decline Ratio with only a difference in scaling. The same
technical analysis that is applied to the A/D Ratio can be applied to the A/D
PO: as a confirmation indicator and to predict trend reversals.
If the A/D PO moves in tandem with the price MA (Moving
Average), the technical analysis will confirm the trend.
If the A/D PO movement and the price trend diverge, you can anticipate a
possible change in the market trend. The "Buy" signal may be generated when the
A/D PO starts to advance after a decline and a "Sell" signal may be triggered
when the A/D Po starts to decline after advancing. The same principles of the
SBV
simple trading system can be applied
to the Advance Decline Percentage Oscillator.
As with other breadth indicators, the A/D PO can be applied only to a basket of
stocks. It can be used to analyze indexes (Nasdaq 100, S&P 500, DJI,
NYSE and other). The index analysis can be used to trade index derivatives, such
as
QQQQ, DIA and SPY, options on indexes, index
emini futures, and options on index derivatives. In addition, it can be used to
trade stocks from the index basket that moves with their index.
V. K.
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the first who introduced this indicators to the world and at the current moment
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Advance/Decline Studies
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