Coin Map

AAE is one of the most frequently viewed studies in developed markets and is based on an extremely simple logic. AAE is calculated by subtracting the rising shares from the falling stocks at the end of the day and adding (or subtracting) the figure to the total index.

A high number is taken as the initial level (for example 5000) and the number found every day (+) is added to this number, and (-) is subtracted from this number.

This index is used to measure the strength of the stock market. When the increasing shares are more than the decreasing ones, AAE rises, if the decreasing shares are more than the increasing ones, it decreases. Most of the time, at the top and bottom levels of the stock market, the AAE index is incompatible with the stock market index. In other words, when the index reaches a new peak, the AAE index cannot make a new peak or vice versa, when the stock market reaches a new bottom, the AAE index cannot make a new bottom. As with other technical analysis indicators (RSI, MACD, etc.), these mismatches are used to determine the return levels of the stock market. This means that as the stock market rises rapidly, the increasing ones are more than the decreasing ones, or vice versa, while the stock market decreases rapidly, the decreasing ones are more than the increasing ones. This situation is considered normal. However, as it approaches the top, AAE starts to decrease despite the rise of the stock market. (or the closer to the bottom, despite the fall of the stock market, the AAE index starts to rise, that is, the increasing ones start to be more than the decreasing ones) This is what we call the mismatch. When this situation occurs, it is possible for us to understand in advance that the power of the stock market decreases or increases and therefore there will be a possible trend change.

The AAE concept is based on seeing the daily changes in supply and demand in a broader sense. Technical analysts often try to smooth the movements of oscillators using moving averages. Developed by Sherman and McClellan, the McClellan oscillator is one of the softened versions of the AAE using the exponential moving average. It is calculated by subtracting the Increasing- (minus) Diminishing value from the 39-day exponential moving average from the 19-day exponential moving average.

The interpretation is as follows: When the oscillator falls into the "oversold" zone from -70 to -100, it generates a sell signal when the buy goes into the "oversold" zone from 70 to 100. If the oscillator moves out of these regions (goes below -100 or goes above 100), this is interpreted as an indicator of "extreme oversold" or "extreme overbought" and indicates that the current trend may continue. For example, if the oscillator drops to -90 and returns, a buy signal occurs. However, if the oscillator falls below -100, the market will most likely continue to move downward for the next 2-3 weeks. Therefore, it is necessary to postpone purchases until the oscillator makes a serious bullish move again or the market gains strength.

The Large AAE oscillator, found by Martin Zweig, is broadly designed to measure the momentum of the market and predict major rises and falls. This indicator is based on the logic that the increase in prices with increasing number of shares is positively correlated with future price increases. Or, on the contrary, it can be said that decreasing prices and decreasing prices will shed light on future declines.

Broad AAE is calculated by dividing the 10-day simple moving average of increasing shares by the total number of increasing and decreasing shares. The wide AAE oscillates between 0 and 1 and the equilibrium point is 0.500.

This indicator is interpreted in several different ways. The first is to think of "Overbought" (bull market) when the indicator rises above 0.66, and "Overbought" (bear market) when it goes below 0.37. The second is to keep track of whether the indicator rises or falls very quickly. As a result of the studies, the indicator changing by 0.2 within 10 days is interpreted as a signal of change in trend. For example, falling below 0.50 from 0.70 in 10 days can be interpreted as a harbinger of long-term declining movement. Or, on the contrary, going from 0.30 to 0.50 within 10 days can be perceived as a long-term bullish signal. Third and lastly, if the indicator goes below 0.500 equilibrium level, it is interpreted as "negative" and if it goes above it as "positive".