Advance & Decline in reference to any of the indices depicts the stocks that have shown positive movement and stocks that have shown negative movement. Positive movements of a stock are termed as advances whereas the negative movements of the stock are termed as declines. Ratio of advance and declines for any index is known as advance decline ratio. Net advance or decline for any index is derived by subtracting the lower attribute from the higher one.
Advance decline ratio greater than 1 denotes more stocks in the index have shown positive movement whereas advance decline ratio less than 1 implies more stocks had negative movement in the index.
If the net advances is positive then it implies more no of stocks in any index have shown positive movement whereas if the net declines is positive then it implies that more stocks have shown negative movements.Advance Decline Ratio
Advance decline ratio is used in fundamental as well as technical research as a market breadth indicator.
A good ratio indicates positive market sentiments for the entire sector (constituting index) and thus we can invest in the sector speculating a good growth further as well. Once the sector selected we can choose the stock on the basis of the previous advances of the indices.
It is regarded as a good technical indicator to track the market sentiments. The frequency to measure the ratio may vary from few minutes, days, weekly or longer then it.