Let’s say the stock market went up. Can you look at the ticker, candlestick chart or indicators like MACD and tell how many of the underlying stocks went up to contributed to the rise? The answer is no.
To understand the market breadth, you need an indicator which gives you specific details of how many stocks went up and down. It gives you a wider perspective of what is happening at the ground level across the listed scrips on the stock exchange.
Advance Decline Ratio – It is among the most popular internal technical indicators. It shows you a percentage and ratio of how many stocks went up in the market in comparison to the ones that went down. With this, you can know if the rally was broad-based or just restricted to a few scrips that did well. This information is the basis of deciding the wider performance of the stock market and is not restricted to indices like Nifty, Bank Nifty, Midcap 50 etc. For instance, if the Advance Decline ratio is negative for a week and a bunch of blue chip stocks continue to make new highs during that time it means that the market is overall bearish. One can analyze this information in several ways depending upon your approach. It tells you if money is flowing in or out of the stock market during the day. It is considered as the most reliable sentiment indicator.
Learn how to use it:
You can find Market Breadth under “Tools” in the main menu as shown in the image above.
You can see that the tool has a column for the Trend, Number of stocks, traded volumes & turnover. You can get to know the total number of stocks that have gone up, down and ones which haven’t changed from the previous day’s close. The colour codes add to the visual convenience of the tool.
In the Volume and Turnover columns, you get a percentage calculation of Advances and Declines. You can easily get to know how much volume is behind the buying and selling.
Similarly, you can also get the same data for NSE Futures Segment. As you can see it shows you the total number of scrips available in the Futures in NSE as 180 (Total Number of Stocks that have derivatives contracts). The total traded volumes for Futures are more than the equity segment because of the leverage present in futures trading. At the right-hand side of the bottom, you can see the Advance Decline Ratio of all the scrips in the Futures Segment. If you compare it with the equity segment of the stock market, you can clearly see that the FNO scrips have outperformed for the day.
You can analyse Advance Decline ratio for stocks in different circumstances. We will need to write another post to explain it in depth. Professional traders use it for technical analysis as no other indicator gives you such widespread information on all stocks. Fyers One is our unique in-house trading platform which is designed to give you that extra edge that is needed to succeed in trading. We’ll write more posts on how to use the available features, stay tuned.
Tejas is the Co-Founder & CEO at FYERS, the youngest team to get NSE’s broker license. He has a specialization in finance and has over 10 years of work experience spanning across proprietary trading, risk management, and broking. Tejas & his team started FYERS, a technology-focused brokerage as a mission to transform the trading/investment landscape in India.