Advance Decline Ratio (ADR)
The Advance Decline Ratio (ADR) is a Forex indicator that reflects a pronounced trend on the market, its strength, and the reversal premises. The tool determines the impulses that could affect the price increase on the marketplace and compares them with pulses that can reduce the asset value.
Initially, the instrument was used on the New York Stock Exchange NYSE, but over time it was adapted for the foreign exchange market. To date, since the robot gives quite accurate figures, it's actively used by traders around the world. The ADR isn't included as the standard indicator of the MT4 trading terminal, but it can be downloaded for free on the MTDownloads website.
The ADR application in currency trading
When the instrument had been used on the stock market only, it had shown the ratio of the more expensive, or cheaper shares. That is, users were informed about the market oversaturation by purchases/sales. In the foreign exchange market, the intelligent algorithm didn't change, but the quotations began to be accepted instead of the share values. As a result of the modification, the coefficient indicates the strength or weakness of the exchange.
Due to its popularity in America, the Advance Decline Ratio quickly moved from the New York Stock Exchange to the terminals of most Forex traders. One of the positive factors influenced this event course, was a precise algorithm that attracts users.
It should be noted that the robot gives fairly clear indications at different time intervals, and it doesn't redraw, which is also important. The ADR remains constant even with an input data increasing. It indicates the stability of the tool and the possibility to apply it to almost any trading strategy.
At the same time, we want to draw your attention to the fact that it's not reasonable to rely on the trade assistants only. The bot may suggest how to enter the market or display the current situation safely, but a trader must make the decision himself.
Reading the indicator
To start using the tool, you must drag it to the graph. You can learn in detail how to download the robot and install it to the trading terminal on the MTD website, after that you can start analyzing price movements and making decisions.
A trader should pay attention to the following things. If along with the growth of the currency pair price, the indicator line also goes up, then an upward trend is fixed. If the price level falls on the graph, and the ADR decreases too, this indicates a downward trend. Note that such conclusions can happen if the price level movements and the lines of the technical instrument are the same. The trading decisions should be taken more carefully when the divergence occurs.
Another important point in the Advance Decline Ratio learning is level 1. It is the key mark which the indicator is based on building a line. The bot works as follows: the number of price growth impulses is divided by the number of price reduction impulses. If the resulting value is bigger than 1, then the indicator will go up, and this will indicate an upward trend. If the indications tend to zero or less, then the indicator will go down, so this is a downward trend.
On the graph, if the indicator crosses the "1" line from bottom to top, then there is likely an upward trend on the market indeed. The downtrend is confirmed by the intersection of level 1 from top to bottom.
And of course, you need to consider the divergence, that is, the price and the indicator are moving in different directions. Such a situation indicates an early trend reversal. The graph shows the period from 10 to 21 December.
Forecasting and making the trading decisions
Like some decline stock indicators, the AD ratio is an indicator of the market breadth. Only the first ones work on a subtraction principle, and the second one shows the proportion. In fact, the higher the indicator has risen on a graphical scale, the stronger the price increase is observed on the market, and accordingly, this enhances the probability of a trend reversal. By analogy, the low coefficient appears due to the oversold marketplace, which means that soon there will be an upswing.
However, you must understand that the market can remain in a given state for a quite long time. That is, if the stock exchange is overbought now, and you're waiting until the trend turns, it can last more than one month. It's recommended to use additionally, for example, the leading indicators that signal a nascent trend, making the forecasts. You can download robots of this group for free on the MTDownloads website.