What Is the Advance/Decline Ratio (ADR)?

The advance-decline ratio (ADR) is a popular market-breadth indicator used in technical analysis. It compares the number of stocks that closed higher against the number of stocks that closed lower than their previous day's closing prices. To calculate the advance-decline ratio, deduct or divide the number of advancing shares by the number of declining shares.

Investors can compare the moving average of the advance-decline ratio (ADR) to the performance of a market index such as the NYSE or Nasdaq to see whether a minority of companies is driving overall market performance. This comparison can provide perspective on the cause of an apparent rally or sell-off. Also, a low advance-decline ratio can indicate an oversold market, while a high advance-decline ratio can indicate an overbought market. Thus, the advance-decline ratio can provide a signal that the market is about to change directions.