Supply Demand Edge

Understanding the A/D Line and NYSE TICK

The Advance/Decline (A/D) Line

The A/D line is a breadth indicator that measures the number of advancing stocks against the number of declining stocks on a given exchange.

How to read the A/D line:

• A rising A/D line indicates overall market strength
• A declining A/D line suggests market weakness

The NYSE TICK

The NYSE TICK measures the difference between the number of stocks trading on an uptick and the number trading on a downtick on the NYSE.

How to read the NYSE Tick ($TICK):

• A positive TICK value indicates more buying pressure
• A negative value suggests more selling pressure.

 

Coding the Supply Demand Edge Indicator

Step 1: Define the High and Low of the Day

The first step is to define the high and low of the day for the price, A/D line, and NYSE TICK. This will serve as the basis for identifying divergences.

def regularSession = secondsFromTime(0930) > 0 && secondsTillTime(1600) > 0;
def hod = if regularSession then if (high > hod[1]) then high else hod[1] else high;
def lod = if regularSession then if (low < lod[1]) then low else lod[1] else low;

 

Step 2: Define High/Low for A/D Line and TICK

Next, we'll define the current high and low values for the A/D line and NYSE TICK. These will be used to compare against the previous high and low values to identify divergences.

def highAD = if regularSession then if (high(symbol="$ADSPD") > highAD[1]) then high(symbol="$ADSPD") else highAD[1] else high(symbol="$ADSPD");
def lowAD = if regularSession then if (low(symbol="$ADSPD") < lowAD[1]) then low(symbol="$ADSPD") else lowAD[1] else low(symbol="$ADSPD"); def highTick = if regularSession then if (high(symbol="$TICK") > highTick[1]) then high(symbol="$TICK") else highTick[1] else high(symbol="$TICK");
def lowTick = if regularSession then if (low(symbol="$TICK") < lowTick[1]) then low(symbol="$TICK") else lowTick[1] else low(symbol="$TICK");

 

Step 3: Define Current High/Low for A/D Line and TICK

We track what the current high and low value is for the A/D line and NYSE $TICK. The reason we track high and low values is to be able to compare if we made a "higher high" in one, but not in the other. This is the beginnings of a divergence.

def currentHighAD = high(symbol="$ADSPD");
def currentLowAD = low(symbol="$ADSPD"); 
def currentHighTick = high(symbol="$TICK");
def currentLowTick = low(symbol="$TICK");

 

Step 4: Plot the Divergence Signals

Now, we'll plot the divergence signals using the information we've gathered. We'll create four separate signals: AD short, AD long, TICK short, and TICK long.

plot ADShortSignal = showAD && high == hod && currentHighAD < highAD; plot ADLongSignal = showAD && low == lod && currentLowAD > lowAD;
plot TickShortSignal = showTicks && high == hod && currentHighTick < highTick; plot TickLongSignal = showTicks && low == lod && currentLowTick > lowTick;

 

Step 5: Set Painting Strategy and Customize Appearance

To make the divergence signals more visually appealing and easy to identify, we'll set a painting strategy for each signal. We'll use boolean arrow plots to represent the signals. You can further customize the appearance of the divergence signals by adjusting the line weight and color. For example, you could make the A/D line signals green and the TICK signals cyan.

ADShortSignal.SetPaintingStrategy(PaintingStrategy.BOOLEAN_ARROW_DOWN);


ADShortSignal.SetDefaultColor(Color.WHITE);
ADShortSignal.SetLineWeight(1);

ADLongSignal.SetPaintingStrategy(PaintingStrategy.BOOLEAN_ARROW_UP);
ADLongSignal.SetDefaultColor(Color.WHITE);
ADLongSignal.SetLineWeight(1);

TickShortSignal.SetPaintingStrategy(PaintingStrategy.BOOLEAN_ARROW_DOWN);
TickShortSignal.SetDefaultColor(Color.RED);
TickShortSignal.SetLineWeight(2);

TickLongSignal.SetPaintingStrategy(PaintingStrategy.BOOLEAN_ARROW_UP);
TickLongSignal.SetDefaultColor(Color.LIGHT_GREEN);
TickLongSignal.SetLineWeight(2);

 

Step 6: Add User Parameters

To provide more flexibility, you can add user parameters that allow traders to choose whether they want to display the A/D line signals, TICK signals, or both.

input showTicks = yes;
input showAD = yes;

Then, wrap the plotting of each signal with a conditional statement that checks the corresponding user parameter.

Interpreting the Supply Demand Edge Indicator

With the Supply Demand Edge indicator coded and applied to your charts, you'll be able to identify potential trading opportunities based on divergences between price action and the A/D line and NYSE TICK.

From experience, I've found this indicator works best when paired together with other indicators. We like to pair it with the Volatility Box models, in order to leverage both a volatility edge, along with a supply demand edge.

Here's how you can interpret the signals:

• A/D Line Divergence: If the price is making new highs (or lows) but the A/D line is not confirming the move, it could signal a potential reversal.
• TICK Divergence: If the price is making new highs (or lows) but the TICK is not confirming the move, it could also signal a potential reversal.

It's important to note that not all divergences will result in a reversal, and some may be false signals. Additionally, the Supply Demand Edge indicator will often plot multiple arrows, before the reversal actually kicks into full gear.