Advance Decline Line (ADL)
Advance Decline Line is one of the most common indicators used in the financial market. This indicator shows the values of the difference between growth and decrease in the share cost. The high efficiency of the ADL use as an indicator is proved by its use in the successful analysis of such financial market indexes as the Dow Jones industrial index, S&P 500 index, etc.
To trade in Forex, various methods are used to predict the trend direction. One of the most popular ways to minimize risks is to use special indicators.
How is the line calculated?
In general, the ADL is calculated by summing up the number of growing shares on the New York Stock Exchange. This indicator can also be calculated for other markets (for example, NASDAQ). The value of the ADL is calculated in 2 stages:
- The difference between the number of growing and falling share indicators is calculated daily; the result is fixed. The number obtained as a result of calculations is the net number of the growing shares. Sometimes this value can be negative.
- Every day, the entire calculated difference between growth and fall is added to the number of shares accumulated previously. The result is saved and displayed in a continuous graph reflecting the behavior of trends in a wide range of stocks in the US stock exchange.
The line can be calculated not only with the daily analysis but also with the weekly data, which is published in printed sources. The lines built on the basis of all day and week data can be graphically different. Among the Forex financial analysts, the daily ADL is the most popular.
Where is the ADL used?
This indicator is used by many financial market traders to confirm the reliability of the current trend and to calculate the probability of its change. In case the stock price rising, however, while the ADL goes down, this fact usually means that the market loses its breadth and the rate can move in a different direction soon. When the slope of the ADL points upward, and the financial market also deviates upwards, it means that everything is right and the trend will remain in the near future.
These lines of stock growth and decline can help trade all the major strategies that are most often used for other cumulative indicators. The trading tools for the stock exchange are most often index instruments (for example, index funds or futures). The ADL with daily indicators is usually used for limiting the strength and the length of trends for a short time period, while the ADL with a weekly period is more useful to work with the share sale for a longer time.
An example of a trading strategy using the ADL:
- You buy index futures at the moment when the value of the line rises above the number of its value recorded on the previous day.
- When the number falls below the previous day's indicator, you can sell the index futures.
Advantages and disadvantages
The ADL, just like the other indicators, has its pros and cons. One of the merits of this indicator is the fact that its use significantly simplifies the process of the financial market data analyzing. It is extremely difficult to independently calculate the number of values, it is much easier to run the ADL calculation program, which will do everything for you. With the help of this indicator, you can easily detect bullish and bearish sequences and be able to decide whether to enter or exit trading positions. The ADL is also compatible with any trading strategy, the versatility of the line opens up the wide possibilities for its application.
The disadvantages of the ADL use can be attributed to the fact that its values at the moment and in remote periods can't be compared, because of the difference in the number of trade instruments in different markets at different time periods. For this reason, the value of this indicator is calculated according to the way the present and previous ADL values are calculated taking into account and without taking into account the number of instruments used, which cost hasn't been changed. In this case, the line of the growing and falling instruments is the instrument number line with an unchanged value for the current period.
Features of the ADL
Using indicators for Forex trading, it is important to clearly understand the principle of their operation. Here is a number of the ADL features:
- The line signals are slow enough.
- Using line indicators, it is easy to conclude which stocks are leading.
- The number of shares on the New York Stock Exchange features many securities, including closed-end bond funds.
- The ADL focuses mostly on shares of small companies.
Thus, working with a robot, the ADL indicator can significantly simplify your Forex trading. You can download the program for work and start earning much reducing financial risks to a minimum right now. Combine popular strategies using a robot, and it will certainly lead you to the desired result.