Advance/Decline Net Difference

The Advance/Decline Net Difference is a market momentum indicator which shows the difference between stocks listed on the stock exchange that advanced in price minus those that declined. 

Advance/Decline Net Difference

The Advance/Decline Net Difference is a market momentum indicator which shows the difference between stocks listed on the stock exchange that advanced in price minus those that declined.  Note that the number of stocks on an exchange vary with time, generally increasing.


Advance/Decline Net Difference Formula

The Advance/Decline Net Difference is calculated by subtracting the number of declining issues from the number of advancing issues.

Formula for Advance/Decline Net Difference

Application of Advance/Decline Net Difference

The day-to-day fluctuations are reduced by using an exponential moving average of the Advancing-Declining Net Difference rather than the daily values themselves.  This results in a good short-term overbought/oversold indicator.  The higher the average net difference, the more excessive the rally and the more likely a correction.  Likewise, low average net difference implies an oversold market and suggest a technical rally.  In the graph below, the overbought and oversold thresholds are arbitrarily set.

High values of advancing/declining net difference indicate overbought condition while low values of advancing/declining net difference indicates oversold condition.
High values of advancing/declining net difference indicate overbought condition while low values of advancing/declining net difference indicates oversold condition.

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