Advance/Decline Ratio (A/D Ratio)
It is another technical indicator depicting the ratio of advancing issues to decreasing issues. The ability of the Advance/Decline Ratio (A/D Ratio) to serve as an overbought/oversold indicator shows its prominent value. When the indicator moves towards the upper peak, it means the market is approaching to an overbought situation and suggests that a correction may soon happen. When the indicator is moving towards its lower limits, it is the signal of an oversold situation and shows that it is worth taking a technical rally. Smoothing the ratio with a changing average often destroy everyday fluctuations of the Advance/Decline Ratio.
It is used to show market breadth. While it is similar to the Advancing-Declining Issues, the A/D Ratio stays at a constant level irrespective of the number of issues on the New York Stock Exchange.