The advance decline line measures the health of the overall market by calculating advancing issue and subtracting the number of declining issues. reading from this technical indicator can be used to confirm or question a move in the market as a whole.
Applying "Advance / Decline Line" to Securities Exams:
The advance decline line measures the breadth of the overall market. As the advance decline line increases it indicates that more stocks are trading higher than lower during and given period of time. As the price of the overall market increases, it should be accompanied by a corresponding rise in the advance / decline line. A market that increase in price without a similar increase in the advance decline line may be a sign of a market that is technically weak. A situation like this could cause technical analysts to question the move higher and to potentially consider establishing short positions.
Alternatively, a market that is falling in price while the advance decline line is rising, could indicate that the sell off is temporary. A technical analyst may use this as indication that establishing new long positions would be appropriate.