Percentage Advance Decline (PAD)
Live Situational Awareness (SA) - The Real SA
Image - Look & Feel
PAD bar
Advance bar (green color) - Close > Open in percentage with respect to overall market.
Decline bar (red color) - Close < Open in percentage with respect to overall market.
Basics
This is the most important aspect of SA because SA from MM is reel not reality that means your anticipating or predicting things and planning ahead of time. But PAD SA is showing you reality in real time. Hence MM SA is reel and PAD SA is real.
MM SA is long term thinking. PAD SA is short term thinking. However PAD drives day to day decision making.
PAD is the percentage of stocks advancing and declining for the day based on this you know who are really in control, Is it bulls or bears.
In PAD, If % advance is more than decline then today market favors buyers and if % decline is more than % advance then sellers are in control and market favors sellers.
Just because % advance or % decline is more than other, doing buying or selling purely based on it is not a profitable strategy and instead both SA from MM and PAD should be considered.
First make a bullish or bearish view based on MM and then see if PAD is in sync with it. If it's in sync then easy money can be made based on that direction. For example if MM is below 20 and as per it your expecting a bounce in market and PAD for that day is showing % advance is more than % decline than means both are in sync hence go long from here.
If both are not in sync then markets are usually in choppy environments hence be very selective on both sides long and short.
Context
If the ratio is looking like 70+ to 30- be it % advance or % decline then for that day we have a clear winner who is in control, That is buyers or sellers hence trade in that direction.
And if numbers are anywhere between 60- 40+ or in and around like 50-50 then it means there is no clear winner and we will mostly chop around and not trend for that day. As there is no clear domination by buyers or sellers hence both longs and shorts can work but usually longs have high probability of working because of the bullish bias of the market.
Whenever numbers are like 80+ 20- then we have a clear direction to trade and that is when you have the highest probability of your trades working on a bullish or bearish side. These numbers are usually seen on event days like budget and election day etc. And at turnarounds levels in MR20, That is levels like above 80 at down day and MR20 below 20 at up day.
Best way to master this is to observe PAD closely and practice it for a few days then you will be a master and this becomes second nature.
As this is a real time thing so numbers keep on changing like at some point in time % advance might be dominating and at some point % decline, But usually if either of them is more than other for the first 10-15 mins of market open then it's most likely that we might also close that way. Here as a general rule if you want to go long make sure % advance is more than % decline and vise versa for shorts so that odds are stacked in favor of you.
Trade Specific Details
For Going Long
Priority of bullish setups should be based on the scanner. trade what you find from the scanner.
If % advance is more than % decline then take up as many trades as possible but if you got hit with 1 or max 2 SL's back to back then stop trading as that specific day is not for you. Along with this you have 1 re-entry chance. Remember to live to fight another day. Objective is to push harder and harder progressively only if you have positive feedback from trades that are taken up in the current trading session. Go guns blazing.
If % advance and declining are similar to each other or with slight variation then that means there is indecision in the market and it's not ideal to push hard but again increase exposure to market as per feedback from the trades that are taken up today and stop trading if you get hit by 1 SL. Along with this you have 1 re-entry chance, make sure you use this when advance is more then decline. Objective is to push harder progressively only if we have positive feedback from the trades that are taken up in the current trading session. Objective is to take it slow and steady progressively. Operate like a sniper.
If % decline is more than % advance then market doesn't favor buying so we have just one opportunity to try your luck if that doesn't work stop it as we are done for the day. So if our luck works for the first time then we can try our luck again as long as our luck is working. Let's keep it going but once it stops, At that moment, close the terminal and let's do something else. Winds are too strong so don't fire too many bullets instead safeguard them.
For Going Short
As most of the shorting we do is WSS or STS setup so at any given point make sure you don't have more than 3 open positions at any time.
If % decline is more than % advance then only look for doing bearish MB trade that is down CT. Try your luck once and 1 chance to re enter. If that works in your favor then try your luck again but if it doesn't then just simply stop shorting as it's not worth the risk.
Trade Count
Trade count based on PAD numbers. This is only applicable if numbers are consistent and not at all volatile.
For this overall risk should not be more than 1.5R max 2R even if all the open positions SL/TSL is hit.
PAD bar
Plus 70 - 30 - Take 2+ trades.
Any other number combination restrict to just 1 trade.
Keen Observations
Whenever we are in an extreme bearish zone in terms of MR20 then if the next trading session doesn't have 80+ advance then the strength of anticipated bounce is weak hence try to avoid buying anything in the first few minutes.
Any kind of rock and roll and short listing stocks in the actionable section has the highest probability when PAD is 80+ 20- and in all other cases scanner is the place to pick stocks. Be it OP or IPO avoid.
When MM SA and PAD SA are out of sync then open long or let's say in opposite directions only when PAD numbers are clear like 70-30.