Potential gain/Downside Ratio

What Is the Upside/Downside Ratio?

The potential gain/drawback ratio is a market breadth indicator that shows the relationship between the volumes of progressing and declining issues on an exchange. Investors regularly utilize this indicator to determine the momentum of the market at some random time.

The potential gain/drawback ratio is a variation on the advance-decline ratio (ADR), which compares the number, and not the trading volume, of stocks that closed higher against the number of stocks that closed lower than their previous day's closing prices.

The Formula for the Upside/Downside Ratio

The potential gain/drawback ratio is calculated as follows:
$\begin &Upside/Downside$_{Ratio = \dfrac{Advancing}Issues}{Declining_{Issues}\ &\textbf\ &Advancing}Issues=\text{\small total volume traded of securities that}\&\text{\small close above their opening price}\ &Declining~Issues=\text{\small total volume traded of securities that}\&\text{\small close below their opening price}\ \end

Grasping the Upside/Downside Ratio

For technical analysis strategies, perceiving directional change is essential to progress. The potential gain/drawback ratio is an effective method for assisting traders with rapidly figuring out likely trends or the reversal of existing trends.

The potential gain/disadvantage ratio is many times smoothed utilizing a simple moving average to filter out more modest, less critical developments. The indicator produces values greater than 1 when the volume on propelling issues is greater than declining issues. It produces values under 1 when the volume on the declining issues is greater than propelling issues.

The potential gain/disadvantage ratio, otherwise called the up/down volume ratio, is accessible as a technical indicator on many trading platforms.

Trading With the Upside/Downside Ratio

Contrarian Strategies

The potential gain/disadvantage ratio is many times used to check overbought and oversold conditions in the market. Low values can show that the market is coming to oversold levels, while high values can demonstrate that the market is becoming overbought.

For instance, assuming the indicator has a value of under 1, traders could search for buy entry points in securities that are drawing closer critical [support levels](/support, for example, stocks approaching their long-term trendlines.

Momentum traders, who trade toward the predominant trend, frequently utilize the potential gain/disadvantage ratio to affirm the more extensive market has support from institutional investors. Traders might choose to involve the indicator as a trade entry filter. For example, they may just buy a stock when the indicator is above 1.5, or take a short position when it is below 0.5.

Traders ought to involve other technical indicators related to the potential gain/disadvantage ratio while building a trading strategy.

Special Considerations

Other technical indicators, for example, the relative strength index (RSI) and stochastic oscillator, could be utilized with the potential gain/disadvantage ratio to guarantee the market isn't in an extreme overbought or oversold condition and due at a cost correction.

For instance, on the off chance that the indicator has a value under 0.5 and the RSI is below 30, it could be prudent to try not to enter a short position until a short-term retracement happens.

Highlights

• The potential gain/disadvantage ratio is the volume traded in propelling as opposed to declining issues on a given trading day.
• Taking a gander at the trend of the potential gain/drawback ratio can uncover whether the market is in a bullish or bearish trend.
• On a standalone basis, the potential gain/disadvantage ratio might uncover whether the market is overbought or oversold.