Advance Decline Line Explained

The Advance Decline Line (A/D Line) is a market breadth indicator that tracks the cumulative difference between the number of advancing and declining issues over time. It measures the overall health and momentum of the market by quantifying participation across listed securities.

At its core, the A/D Line reflects the underlying strength or weakness in market internals. Each trading period, the indicator calculates the net difference: advancing issues minus declining issues. This value is then added to the previous period's cumulative total, forming a continuous line that moves up or down.

When more stocks are advancing than declining, the indicator rises, signaling bullish breadth. Conversely, when more stocks are declining than advancing, the line falls, indicating bearish breadth. The key insight lies not just in the direction, but in the divergence between price and the A/D Line.

Divergences between an index like BTC or ETH and the A/D Line often signal potential reversals. For example, if Ethereum hits new highs but the A/D Line fails to confirm, it suggests weakening participation, hinting at a potential downturn.

The indicator does not measure price magnitude, volume, or volatility. It purely measures net stock participation. A large-cap rally driven by a few assets might show little movement in the A/D Line if broader participation is lacking.

Traders use this tool to confirm trends, spot divergence, and assess market internals. Continuous rising markets with a rising A/D Line suggest strong participation. A flattening or declining A/D Line in a rising market may signal distribution and hidden weakness.