Cumulative Advance Decline Trading System

Why the Cumulative Advance Decline is Useful in a Trading System

With the Cumulative Advance Decline, you’re able to spot broader market trends, beyond the movements of individual stocks. For example, when a market rally is accompanied by a rising cumulative line, it strengthens the bullish case. Conversely, if the cumulative line is falling during a rally, it might signal weakness and a potential reversal. By integrating the Cumulative Advance Decline into your trading system, you’re able to monitor both individual tickers and the overall market to better time entries and exits.

Building a Cumulative Advance Decline Trading System

Step 1: Setting Up Your Workspace

To get started, open ThinkOrSwim and navigate to the Studies section. Click on ‘Create’ to start a new custom study. Name this study something meaningful, like Cumulative Advance Decline System. For this tutorial, we’ll work with six market symbols, but feel free to adjust the number to suit your needs.

Step 2: Input Your Symbols

In this example, we’re focusing on six market symbols. Use the input function to define each symbol as shown below. This setup allows you to easily adjust symbols in the future directly from the study settings.

input symbol_1 = "/NQ:XCME";
input symbol_2 = "/ES:XCME";
input symbol_3 = "/YM:XCME";
input symbol_4 = "/RTY:XCME";
input symbol_5 = "/ZB:XCBT";
input symbol_6 = "/MNQ:XCME";

Step 3: Defining the Advance/Decline Logic

Now, we’ll determine whether each symbol is advancing or declining based on the previous close. Use the following code for each symbol to identify if it has increased or decreased in value compared to the previous bar.

def symbol1 = close(symbol_1);
def symbol11 = close(symbol_1)[1];
def symbol1a = symbol1 > symbol11;
def symbol1b = symbol1 < symbol11;

Repeat this for each symbol, changing the variable names accordingly. For example, replace symbol1 with symbol2 and so on.

Step 4: Calculating the Cumulative Advance Decline Line

With the advance/decline status defined for each symbol, you can now calculate the Cumulative Advance Decline Line by summing up the individual results. The following code calculates the line and plots it:

plot advDecLine = TotalSum((symbol1a - symbol1b) + (symbol2a - symbol2b) + (symbol3a - symbol3b) + (symbol4a - symbol4b) + (symbol5a - symbol5b) + (symbol6a - symbol6b));
AddChartBubble(GetYYYYMMDD() >= anchorDate, 0, advDecLine, Color.Yellow);

Step 5: Adding a Moving Average for Trend Identification

Adding a moving average to your cumulative line can help you identify the broader trend. Use the following code to calculate and plot a 50-period moving average of the advance-decline line:

plot advDecLineAvg = Average(advDecLine, 50);

Step 6: Adding Buy and Sell Signals

To make this a complete trading system, let’s add buy and sell signals based on crossovers of the Cumulative Advance Decline Line and its moving average, with CCI confirmation. A bullish signal occurs when the line crosses above the average with CCI above 100, while a bearish signal appears when it crosses below with CCI under -100. Here’s the code:

plot bearishCrossOverSignal = if advDecLine < advDecLineAvg and advDecLine[1] >= advDecLineAvg and CCI() <= -100 then advDecLineAvg else Double.NaN; plot bullishCrossOverSignal = if advDecLine > advDecLineAvg and advDecLine[1] <= advDecLineAvg and CCI() >= 100 then advDecLineAvg else Double.NaN;
bearishCrossOverSignal.SetPaintingStrategy(PaintingStrategy.ARROW_DOWN);
bullishCrossOverSignal.SetPaintingStrategy(PaintingStrategy.ARROW_UP);

Step 7: Styling the Arrows

To make the signals easier to spot, you can increase the arrow weight. Here’s how:

bearishCrossOverSignal.SetLineWeight(3);
bullishCrossOverSignal.SetLineWeight(3);

Now, your chart should display up and down arrows on the Cumulative Advance Decline Line whenever a bullish or bearish crossover occurs.

Conclusion

You’ve now built a powerful Cumulative Advance Decline Trading System that leverages the market breadth to provide you with trade signals. Feel free to experiment with different tickers, adjust the moving average period, or add other conditions to enhance the indicator further.

As you trade with this system, remember to observe how well it tracks major market shifts and how it performs under different market conditions.

With these insights, you can fine-tune the system to suit your trading style even more.

Hope you found this tutorial helpful. Thanks for watching, and as always, good luck trading!