This is a measure of the number of stocks that have advanced in price and the number that have declined in price within a given time span. The A/D is generally expressed as a ratio and can help indicate the general direction of the market; when a higher number of stocks advance rather than decline on a single trading day, the market is thought to be bullish. The A/D will function best as a confirming indicator and it is often used with other types of analysis as a guide to the trend of the overall market. It is also used occasionally for specific stock/industry groups.
The most common way to display A/D data is with a chart showing the cumulative difference between the advances and the declines on the NYSE. The period can be one week, one month, or any other common time frame but since it is best used to identify new or developing trends, it must be relative to the positions in your portfolio. Compare the A/D chart with that of the DJIA. If the Dow is moving higher but the A/D line is flat or dropping, that is a negative signal and may indicate a future slump. Watch for new highs and lows on the A/D chart. Near market peaks, the A/D line will generally top-out and begin a gradual decline before the overall market. As with all technical indicators, make sure that it confirms other signals.