Advance / Decline (A/D) Ratio is another indicator used as forex technical analysis, besides the A/D Line. This Indicator is similar to the A/D Line, but it has the use to get the ratio of advancing issues to decreasing issues. The main function of this indicator is to help as an overbought/oversold indicator shows its prominent value.

This Advance / Decline Ratio is very useful for us to determine the momentum of the market. You can see that values over 1 are generated when there are more stocks are advancing (the price increase) than declining. Values less than 1 are generated when there are more stocks decreasing in price. It differs from the Advancing-Declining Issues indicator in that the scale of values remains more consistent.

This indicator is good to be used as overbought/oversold indicator for the market. Very high values may indicate that the market is becoming overbought, it means that a sell-off may occur in the near future that can causes prices to drop. Likewise, very low values can indicate that the market is becoming oversold.

In general, broad market indicators can be used for trading against broad market indices through forex, options, futures, and mutual funds. They can also be used to increase the effectiveness of more specific signals by adding confirmation or warning of upcoming trends.

Along with the Advance-Decline line, the Advance Decline Ratio is considered one of the best indicators of the overall wellbeing of the market.

It is similar to the Advancing-Decline Line in that it displays market breadth, but where the Advancing-Decline Line subtracts the advancing/declining values, the A/D Ratio divides the values. Taking the moving average of the AD ratio will smooth it so it can be used as an overbought and oversold indicator.