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| A/D Ratio = |
Advances
Declines
|
The negative side of this formula
is that the A/D Ratio has logarithmic scaling from zero (when advances = 0) to
infinity (when declines = 0) with center line at 1 (when advances = declines).
This should not be a problem when a trader analyzes advancing and declining
stocks of the NYSE, yet, in case of a small basket of stocks such as DJI (Dow
Jones Industrials) very often we may see a situation when A/D Ratio reaches zero
or infinity (either declines or advances are equal to zero).
To avoid a situation when the A/D Ratio would run towards infinity our team has
developed and implemented a new technical indicator Advance/Decline Percentage
Oscillator (A/D PO) in September 2008. We are the first who introduced this
indicator to the world and at the current moment we are the only company that
provides this indicator and we consider ourselves this indicator developers.
The A/D PO has the same meaning and analyzes the ratio between the advances and
declines. The difference between A/D PO chart and A/D Ratio chart (with similar
chart setting) is barely noticeable. Yet, it allows to analyze the A/D Ratio
results in the percentage scale from -100% to +100%.
Below you may see formulas used in A/D Percentage Oscillators.
| A/D Issues PO = |
Advance Issues - Decline Issues
Advance Issues + Decline Issues
|
x 100 |
| A/D Volume PO = |
Advance Volume - Decline Volume
Advance Volume + Decline Volume
|
x 100 |
| A/D Mom Volume PO = |
Advance Mom Volume - Declined Mom Volume
Advance Mom Volume + Declined Mom Volume
|
x 100 |
| H/L PO = |
New Highs - New Lows
New Highs +
New Lows
|
x 100 |
From the formulas above you may see that
Below you may see the chart of the A/D Issues Ratio and A/D PO.
Chart 1:
DJI index - A/D Issues Ratio and A/D issues PO
As you may see the Advance/Decline
Percentage Oscillator looks exactly as Advance/Decline Ratio with the only
difference in scaling. The same technical analysis that is applied to A/D Ratio
could be applied to A/D PO: as confirmation indicator and to predict trend
reversal.
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If the A/D PO moves along with the price MA (Moving
Average) then technical analysis tells that this confirms the trend.
The divergence of the A/D PO movement and price trend could be used to
anticipate possible changes in the market trend. The "Buy" signal could be
generated when A/D PO starts to advance after a decline and "Sell" signal when
A/D Po starts to decline after being in advance. The same principles of the SBV
simple trading system could be
applied to Advance Decline Percentage Oscillator.
The same as with other Breadth indicators the A/D PO could be applied to the
basket of stocks only - it could be used to analyze indexes (Nasdaq 100, S&P
500, DJI, NYSE and other).
The index analysis could be used to trade index derivatives, such as
QQQQ, DIA and SPY, options on indexes, index
e-mini futures, options on index derivatives as well as it could be used to
trade stocks from the index basket that moves along with their index.
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