Studying Breadth of the Market
Market Breadth – ADS
(Advance, Decline, Same) Feature in TrueData Cheetah is similar to the breadth indicator. Breadth Indicator
measures the number of advancing and declining stocks using a mathematical
formula. It reflects Market Sentiments.
Looking at ADS, a Trader
would get an idea about how a Market Performing.
It also has a third line ‘Same line’ which shows the percentage of stocks which
are neither advancing nor declining, it shows stock with no % change in their
close price.
The advance-Decline line can be better understood by Studying convergence and divergence:-
Convergence
Bullish-
when advance line converge towards decline line from bottom to above, then it’s
a bullish convergence. It generally shows signs of trend reversal in the market
from Bearish to Bullish.
Bearish
– when advance line crosses the decline line by moving down, it leads to
bearish convergence. This typically indicates a bearish reversal in the
market.
Divergence
After convergence, ADS forming new highs or new lows. This can be used
to identify a trend where fewer stocks are declining and the decline in the
index may be nearing an end. Thus a trader can identify a stock in a group by
using ‘% chg’ for trading.
Similar trading pattern could be followed in Bearish divergence.
Ratio
A/D ratio if above 1.25 shows a bullish trend in the market whereas if
below indicates a Bearish Trend, if A/D ratio is between 0 and 1, this indicates bearish to choppy
market. Using A/A+D formula shows a strong bullish trend if above 0.60 or
bearish trend if below 0.50.
This TrueData
Cheetah feature is
therefore significant while trading as it gives you an overall view of the
market.