This is one the best known market breadth indicators. Each day, a certain number of stocks advance and a certain number of stocks decline. In order to calculate the AD line, take the difference between the number of advancing issues and number of declining issues.

If there are more advancing issues, then the AD number for that day is positive. The AD number is plotted daily on a chart which becomes the cumulative AD line. A divergence occurs when the AD line is moving opposite the underlying stock index. An increasing AD line during a downtrend indicates strength in the market and that a potential bottom may be forming.