Advances & Declines - NCDEX

What are Advances/Declines in NCDEX?

Advances indicate the number of commodities in the NCDEX market whose price increases occurred in a specific period. Declines indicate the number of commodities whose prices fell. A combination of these measures enables traders to assess whether the larger market perspective is bullish (more advances) or bearish (more declines).

For instance, when 50 commodities listed on the NCDEX are rising in price and 30 move down, the market is trending more toward advances than declines, indicating positive momentum.

These indicators help in understanding the market breadth and help traders predict a turning point in the trend. They also inform traders about the momentum of commodities in the market.

What is the Purpose of the Advance/Decline Ratio?

The ADR is a metric used for measuring the breadth of the market. It measures the number of advancing commodities versus declining ones, giving a ratio which encapsulates the broader market activity. This ratio is effective when trying to determine whether the market activity is bullish or bearish.

• Identifying Market Trends: A higher ADR (>1) indicates a bullish market, with more advancing commodities than declining ones. Conversely, an ADR less than 1 suggests bearishness.
• Confirmation of Price Movements: Using ADR and other price indices, traders can confirm whether the observed price movement of the market is working with greater commodity participation.
• Divergences: In case the ADR declines but market indices start rising, it may be a sign of losing upward momentum and an upcoming reversal.

Types of Advance and Decline Ratios

• Index-Specific ADR: The Index-Specific Advance/Decline Ratio analyses the breadth of the market for a given index. It breaks up the advances and declines of only those commodities that constitute one particular index, giving it a view of the index performance in focus.
• Sectoral ADR: This Advance Decline Ratio focuses on the advance of specific sectors in the market, like grains, oilseeds, or spices in the NCDEX. In principle, this ratio narrows it down to sector-specific data and shines a light on individual commodity groups' performances and sentiments.
• Breadth-over-Depth ADR: The Breadth-over-Depth Advance/Decline Ratio is an advanced metric that calculates beyond the mere number of advances and declines. It takes into account the magnitude of price moves, providing a richer insight into the conditions of the market. This kind of ADR assesses whether or not breadth (number of advancing/declining commodities) is supported by depth (percentage price changes of these commodities).

The Formula to Calculate ADR

The Advance/Decline Ratio is calculated using a straightforward formula:

ADR = Number of Advancing Commodities / Number of Declining Commodities.

The outcome can be interpreted as follows:

• ADR > 1: More advances, bullish sentiment.
• ADR < 1: More declines, bearish sentiment.
• ADR = 1: Balanced market.

Example Calculation

Advancing commodities: 40

Declining commodities: 20

ADR = 40 / 20 = 2

Here, the ADR of 2 indicates a bullish market with twice as many advances as declines.