A market-breadth indicator used in technical analysis to compare the number of stocks that closed higher with the number of stocks that closed lower than their previous day's closing prices. To calculate the advance/decline ratio, divide the number of advancing shares by the number of declining shares. The A/D ratio can be calculated for various time periods, such as one day, one week or one month.
Investors can compare the moving average of the A/D ratio to the performance of a market index such as the NYSE or Nasdaq to see whether overall market performance is being driven by a minority of companies. This comparison can provide perspective on the cause of an apparent rally or sell-off. Also, a low A/D ratio can indicate an oversold market, while a high A/D ratio can indicate an overbought market. Thus, the A/D ratio can provide a signal that the market is about to change directions.