One Indicator Stock Traders Must Follow

Most stock investors spend a lot of time using technical or fundamental analysis to pick the best stock, ETF, or fund to buy. Less time is spent on doing equally rigorous analysis of the market’s trend, and too often their conclusions are based on a fundamental opinion of the economy. The majority of technical analysts, of course, will tell you that the fundamental data badly lags the price action.

In March 2009, it was almost impossible to have a positive fundamental view of the economy. As I will show you later, there were clear technical signs at the time that the stock market was indeed bottoming. In this article, I will focus on the one indicator that is often ignored by many, but that should be followed closely by all stock investors.

While there are always some stocks that will rise when the major averages are declining, going against the major trend is generally never a good idea. By determining the market’s internal strength or weakness, you will be able to make a more reasoned decision to buy or sell, and this should make your investing more successful.

The best way to measure the market’s health is through the Advance/Decline line, or A/D line. The most important A/D line is based on the NYSE Composite. It is calculated daily by determining the number of stocks that are up (advancing) and the number of stocks that are down (declining). The A/D line is a then-cumulative total of the number of advancing minus the number of declining stocks.

http://www.forbes.com/sites/tomaspray/2013/12/28/one-indicator-stock-traders-must-follow-2/