Understand how the Advance Decline Ratio measures market breadth and what it reveals about stock market health and sentiment.
The Advance Decline Ratio (ADR) is a market breadth indicator that compares the number of advancing stocks to declining stocks on a stock exchange. It helps investors gauge overall market sentiment, showing whether more stocks are rising or falling during a trading session.
The Advance Decline Ratio (ADR) is a market‑breadth indicator that shows the balance between stocks that are rising versus those that are falling over a given period. It reflects the strength or weakness across the market beyond what an index like the Nifty or Sensex might show alone.
Short term movements in ADR can hint at whether buying interest is broad‑based or concentrated in only a few stocks.
Here’s the formula used to compute ADR:
ADR = Number of Advancing Stocks ÷ Number of Declining Stocks
Advancing Stocks are those whose closing price is higher than the previous trading session.
Declining Stocks are those whose closing price is lower than the previous session.
A ratio greater than 1 means more stocks advanced than declined; less than 1 means more declined.
Here is how ADR tends to be interpreted:
If ADR > 1, this suggests bullish sentiment: many stocks are rising.
If ADR < 1, this suggests bearish sentiment: more stocks are dropping.
Observing ADR over multiple periods helps spot trends or shifts in market breadth.
Short‑term ADR readings can diverge from longer‑term ones; a strong short‑term ADR followed by weakening can warn of a reversal.
Different versions of ADR are used depending on the time frame or market segment:
Daily ADR — compares advancing vs declining stocks for a single trading day.
10‑Day ADR or Moving Average ADR — smooths out daily fluctuations by averaging across several days.
Cumulative ADR / A‑D Line — aggregates net advances over time to show trend strength.
These variants help investors tune ADR for either short‑term trading or longer‑term market analysis.
ADR matters for multiple reasons:
It gives insight into market breadth, showing how widespread market strength or weakness is.
Helps confirm index moves — e.g., if the index rises but ADR falls, the rise might be supported by only a few large stocks.
Useful in spotting hidden strengths or weaknesses that might not be obvious from headline index movements.
Supports more informed decision making in combination with other technical indicators.
Here are some uses of ADR:
Detecting possible reversals when ADR diverges from index performance.
Monitoring participation levels over time, which some market participants use to assess momentum shifts.
Confirming whether market rallies are broad‑based or narrow.
Using it alongside moving averages, trendlines, or oscillators for more robust signals.
Benefits of ADR include:
Clear and simple to compute.
Offers a direct view of how many stocks are participating in market moves.
Less influenced by large‑cap stocks compared to purely cap‑weighted indices.
Helps in identifying early warning signs of weakness or strength.
No indicator is perfect. ADR has these limitations:
It treats all stocks equally, ignoring size or volume; small or illiquid stocks can impact the ratio disproportionately.
It can give false signals, especially during periods of market noise or low liquidity.
Sector bias might be present if a few sectors dominate advancing or declining stocks.
ADR alone may not be predictive; must be used with complementary indicators and market context.
The Advance Decline Ratio is a widely used metric for observing market breadth and sentiment. It complements price and index data by indicating how many stocks are involved in market moves. While it has limitations—particularly in volatile or thinly traded markets—the ADR can provide additional context about market participation when interpreted alongside trend indicators and other analytical tools within broader market assessments.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
ADR indicates whether market moves are supported by many stocks advancing or dominated by many stocks declining. It gives a sense of whether the market rally or downturn is broad‑based or narrow.
You divide the number of stocks that closed higher than yesterday by the number of stocks that closed lower than yesterday using data from the same time frame.
A declining ADR means fewer stocks are keeping up with price gains, which can be a warning sign that a market uptrend may be losing strength.
In NSE, ADR is calculated using all listed stocks or a defined subset, similar to other exchanges. Traders monitor it daily or over periods like 10 days to analyse strength of breadth.
The 10‑day ADR is an average of ADRs across the past 10 trading days. It smooths daily volatility and reveals more stable sentiment trends over a short term.