Definition: A ratio of how many stocks went up on a particular day to how many went down that day.
Example: A country’s stock market has 1,000 different public companies. On one particularly good day, the shares of 800 of the companies go up. The shares of 200 of the companies finish down. The Advance Decline ratio is 800 to 200, which reduces to 4 to 1. Another way to state this ratio is that 4 out of 5 stocks advanced on this day.
Investeach explains: The Advance Decline ratio is a great look at the breadth (ie: how wide) a move in the market really is. Consider that the Dow Jones Index is comprised of just 30 very large companies. If 20 out of those 30 go up on a particular day because people decided to invest in the stocks of the biggest companies, the Dow Jones may have an impressive gain. However, that doesn’t mean that things were so good among the thousands of other public companies. The Advance Decline ratio provides a better look at how all public companies performed.
Finally, a number of companies will neither advance nor decline. Instead, their stock prices will close at the same price they did the prior day. Theirs price are said to be unchanged.
Riddle me this:
1. What do we mean when we say that a stock “advanced?”
2. Why is this ratio a great indicator of how the market performed overall on a given day?
3. How can it be that a particular stock did not advance or decline?