The Perfect Record of a Breadth Thrust

There are literally hundreds of data points that are injected into our technical trading systems. Each piece of data has its own story.

The same data point can be used in a complex trading system as well as a very simple measure of the current market environment.

For example, we previously wrote about the advantages of using the Advance Decline Line to determine the underlying health of the stock market. But how else can this data point be used?

Market breadth can be gauged by the Advance Decline Line and has been used for decades by market technicians to determine the underlying health of the stock market.

First, let’s recap how this data point it’s utilized, starting with the definition:

“The AD Line is a market breadth indicator that analyzes the number of stocks advancing minus those that are declining. Positive market breadth occurs when more stocks are advancing than are declining, suggesting that the bulls are in control of the market’s momentum. A bearish momentum would result when there are more declining stocks.”

We went on to discuss one of the ways we use the AD line by measuring divergences:

“Divergence is the disagreement between the stock market index and the AD Line and can result in significant implications for investment management. If the index moves up while the AD Line moves down, the index may be misleading about the true direction of the overall market.”

Finally, we discussed how investors can utilize such a tool:

“Identifying a divergence can help the investors recognize and react appropriately to a change in price action. It tells us something is changing, and investors must decide, if they want to take some risk off the table. Seeing divergence increases the profitability of protecting your investment gains.”

Now you’re up to speed.

CLICK BELOW FOR THE FULL BLOG POST