Why the AD Line Chart Is Really Important
One of the most important faculties required to be successful in conventional or online stock trading is understanding charts. You can read pages of analyses by market experts, and get the most out of the advanced trading software you are using, but charts can give much more information at just a careful glance. Charts can tell us a lot about the market. They need to be closely observed before decisions can be made. Charts aren't subjective and they don't exaggerate. They just tell you what's going on.
What the AD Line Conveys
One of the most important charts out there deals with the Advance-Decline Line (AD line), which analyst Jimmy Butts of StreetAuthority focuses on. The AD line indicates breadth on the basis of net advances. Net advances are the number of stocks rising minus the number of stocks declining. When advancing stocks are greater than the declining ones, net advances are positive. Net advances are negative when the declining stocks exceed the advancing stocks. The AD Line is basically a growing measure of the net advances, rising when the net advances are positive and falling when they're negative.
Butts says that this can be used as an indication of what actually happens beneath the surface of the market. If you find the S&P 500 soaring to new highs, Butts says, the AD line can confirm what’s seen on the surface of the market by hitting new highs itself. If it does hit new highs as the S&P 500 does, it indicates that the market is indeed going through a bullish trend. But if the AD line doesn't quite keep up the pace with the S&P 500, it shows that the market is actually weak despite the S&P 500 soaring. It is an indication of a bearish deviation.
An Example to Realize How Crucial the AD Line Is
Butts provides an example of charts by StockCharts.com to highlight the example:
As we see here in this example, the AD line isn't confirming the market highs of the NYSE Composite Index. That indicates that this rally is a false rally and that we’re moving towards a bearish market.
Charts like these can present the truth as it is, without any flattery. That helps you make better decisions. Something else that helps you make good decisions and trade smoothly is advanced trading software. It particularly helps in online stock trading, and broker dealers such as TradeZero offer this for free along with features such as commission free trading. Get in touch with us at 1 954-944-3885 or email firstname.lastname@example.org.
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