Advancing and declining

Q:

What’s the “advance-decline” ratio? — G.K., Decatur, Ill.

A:

It’s an indicator that some people use to gauge market sentiment. It simply takes the total number of stocks that are trading above where they last closed and divides that by the total number of stocks trading below where they last closed.

There are close to 6,400 stocks on the New York Stock Exchange and the Nasdaq Composite combined. If 4,000 of them are trading higher than their last closing price while 2,400 are trading at a lower level, the advance-decline (“A/ D”) ratio would be 4,000/2,400, or 1.67. A number above 1.0 suggests a bullish market, while a number below suggests a bearish one.

The A/D ratio can be insightful because many stock indexes are weighted to heavily favor large companies and do not reflect how small companies are doing. The A/D line treats each company equally, as a single data point.

When the A/D ratio diverges from big indexes — for example, it’s been showing more companies falling than rising while the major stock indexes have risen — that may be a sign of trouble ahead.

In general, it’s best to avoid trying to time the market. Simply invest your long-term dollars in great companies trading at reasonable prices — or in low-fee broad-market index funds.

Q:

What do brokerages charge to buy or sell a stock?

— H.D., Biloxi, Miss.

A:

Decades ago, it might have cost you hundreds of dollars, but these days, major brokerages typically charge less than $10 per trade, while many charge $0. Good brokerages also generally offer other services, too, such as stock research, banking and/or financial planning. Learn more at Broker.fool.com.