One name of the indicator used by stock and forex traders is the Advance-Decline Indicator. This indicator is not available on the default MT4 platform. So maybe MT4 platform users are less popular with the name Advance-Decline indicator.
The Advance-Decline indicator is used by stock and forex traders to identify and confirm a market trend. And possible market trend reversals.
What does the Advance-Decline Indicator look like? Continue reading the explanation and review of this indicator.
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What is the advance-decline indicator (ADL)?
Citing to Investopedia, the Advance-Decline indicator is a technical indicator that serves to describe the difference between the amount of rising and fall in a price every day.
The calculation of the Advance-Decline indicator by means of a positive number is added to the previous number. Or if a negative number is subtracted from the previous number.
This Advance-Decline indicator is cumulative where the indicator line provides signals that show market sentiment.
So that it gives a signal whether there are more stocks that are rising or falling. The Advance-Decline indicator can confirm the price trend. In the main trend and provide alerts if there is a possibility of a reversal when a divergence pattern appears.
Chart Tradingview.
An important key to using an Advance decline indicator
- This indicator is to identify the participation of buyers and sellers. And will show how many are participating in a market rally or decline.
- The rising indicator line confirms the uptrend indicating strong participation.
- If the main trend is strengthening and the indicator line is falling. It indicates that the least traders are participating in the rally which is possible the main trend has a possible reversal.
- When the main trend is down. This downward indicator line confirms the downtrend.
- If the main trend is falling and the indicator line is rising. It is possible to confirm that the trend will be a possible reversal.
The deviation that occurs between the indicator’s Advance-Decline line and the price is only a warning of a possible trend reversal. Traders use the daily ADL to analyze short-term trend movements, while the weekly ADL is widely used to analyze long-term trend strength.
Advance decline ratio indicator
Quite similar to ADL, the Advance-Decline ratio is also useful for identifying trends, confirming signals and possible reversals.
Basically, the advance-decline ratio indicator is an indicator used for stock analysis. The calculation model is to compare the negative stock price to the positive share price, in the sense that at the close of the market a group of shares with an increase in positivity is divided by a group of shares with a negative decrease.
The value of the distribution of the two sets of shares is used as a reference for measuring market sentiment.
Example calculation
Stock A is up 12%, share B is up 10%, share C is up 5%, share D is up 7%, share E is down -10%, share F is up 9%, share G is up 5%.
Of the seven stocks, 6 stocks rose positively and 1 stock fell negative, so the calculation is 6/1 = 6. So the value Advance decline ratio is 6.
If the value of Advance-Decline Ratio tends to increase from day to day, for example, the first day of the ADR value of 1.1, the second day of the ADR value of 1.2, the third day of the ADR value of 1.3, and so on, it can be concluded that the market sentiment is bullish.
Conversely, if the ADR value decreases, it indicates that market sentiment is bearish. Compiling these metrics if done manually, luckily, there are indicators that give the value of the ADR line, like the example below.
Tradingview.
This indicator can also be used to find overbought and oversold lines by looking at the ADR line at the highs and lows points.
From the example image above, when the ADR is at zero it gives an oversold signal, and if the ADR is at the high point of level 4, it gives an overbought signal. it may signal a reversal.
For stock traders, if you want to know news about stock prices, you can follow the updates on WSJ.
How to use an advance-decline indicator?
Basically, the ADL indicator is a technical indicator created for stock index trading because it is an indicator that cumulatively calculates the difference between advancing and declining stocks plus the previous net advances.
This indicator is used to analyze the stock price trend, which if the ADL line tends to go up and the stock price tends to go up then it is a bullish trend.
Broadly speaking, the way to use the ADL indicator is to do bullish, bearish, divergence analysis.
Analyze bullish trend with Advance Decline Indicator
Using the ADL indicator you don’t need to calculate manually to generate ADL lines. Simply read from the ADL line and also the stock price. If applied in forex is more or less the same way to use it.
The bullish condition confirmed by ADL is when the price moves in an upward direction, as well as the ADL indicator also shows an upward direction.
Tradingview
Analyze downtrend with the Advance decline indicator
In a downtrend, the ADL indicator will point downward, as well as the price direction will go down. This is a simple concept of using ADL to analyze bearish trends.
This means that a group of stocks has decreased so that the average stock index is falling because of decreased demand.
Daytraderworld
Analyze bullish divergence with Advance Decline Indicator
A bullish divergence occurs when the ADL is pointing upwards, while the price is pointing down. If you find such a stock condition or forex pair is a signal of bullish divergence, which occurs when stock prices decline and begin to weaken to continue the decline.
Traingview
Analyze bearish divergence with Advance Decline indicator
A bearish divergence occurs when the condition is, the ADL line is pointing down, but the price is pointing upward.
In this condition, it means that the increase that has occurred has begun to weaken and is reluctant to continue to rise and is a signal of a trend reversal. If a bearish divergence appears, it is a short signal.
Tradingview
How to calculate the advance-decline ratio?
To calculate the advance-decline ratio using the formula, the number of advancing stock divided by the number of declining stocks.
Even though one is derived from ADL, the formula used to calculate ADR is different from the formula for calculating ADL. Therefore the results of the ADR line are also different from the ADL.
Because the ADR indicator requires information from collective stock, traders need a source to find out how many shares are increasing, and how many shares are decreasing. Only then from this information using the formula to perform calculations.
If the indicator is applied in forex it will count from the number of bearish candlesticks to bullish candlesticks which are then calculated using the ADR formula.
Advance decline ratio indicator mt4
ADL Advance Decline Indicator is a less popular indicator because it is also not available by default on the MT4 platform. So that if you want to use indicators on this platform, you must use those made by third parties.
But unlucky, in my search I did not find this indicator for MT4, but for MT5 there is still information related to this indicator here.
The only way to get the mql4 file is you ask a robot programmer and indicators to translate the ADL indicator into mql4 code. Usually, it’s not free, you can create a job for this project at MQL5.com which is a community of Metatrader users.
Advance decline indicator TOS
Although not popular with MT4 users, it turns out that the Thinkscript of this indicator is more popular for Thinkorswim platform users.
You can get the code from the TOS file developed by Tosindicator. They are a team of experts who are open to developing software and will probably answer your questions. Or you can try to ask any question on Reddit.
Is the Advance Declining indicator profitable?
Basically, this ADL indicator was created to analyze stock prices, where it takes a cumulative set of rising stock prices, and compares it with a set of falling share prices.
So if you apply this indicator for forex analysis, you may encounter a lot of error bias in giving trading signals. But you have to try it yourself to prove it.
And the character of pair price movements in forex with stocks is different. And this is also the second reason why this indicator may be less accurate for forex analysis.
But ADL is an interesting indicator anyway, as it can find trending market sentiment, and possibly signal a reversal.
Better use ADL with learn price action
Maybe you can use this indicator alone, but it’s better if you don’t rely on it alone. Especially during a reversal, this requires supporting the reversal pattern of price action.
You need to know candlestick patterns which are possible price reversals as trend reversals. And nothing is perfect, ADL also has its own imperfections. Therefore the discipline of running trades while still using the risk-reward ratio in order to manage risk.
Advance-Decline vs Advance Decline Ratio
The Advance-Decline ratio simply compares the number of shares or the price of a currency pair that closes higher with the lower one. Then calculates the ratio of that amount.
Advance-Decline collectively finds the number of closed prices advancing by declining, to determine market sentiment. So this broad indicator takes the average of many stocks.
Final thought
The Advance Declining indicator may be less popular among traders using the MT4 platform. Maybe, if you have interested in using this indicator. One way you can try to do this is to look at the chart on the Tradingview platform.
Attach Advance Decline Indicator to the chart to do analysis. Then go to your MT4 platform to open a new position using the ADL indicator’s confirmation signal.
This method may not be the best, as different platforms may cause different price details. But if you have an indicator file for the MT4 platform it is much better.
However, this is only an alternative if you don’t have the indicator file for the MT4 platform.
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