Technical indicator
Accumulation/Distribution
Accumulation/Distribution (A/D) is a volume-based momentum indicator built on supply and demand. It is based on the logic that significant price moves are accompanied by more volume.
What Accumulation/Distribution shows
A/D is very similar to On Balance Volume, but instead of adding the whole day’s volume when the close is up, it adds a portion of the volume depending on where the close falls within the day’s high–low range. A close near the high counts as buying pressure, a close near the low as selling pressure.
When A/D is rising, more volume is accompanying positive price changes – the stock is being accumulated (bought). When A/D is falling, most of the volume is associated with negative price moves – the stock is being distributed (sold).
Calculation
where Ht, Lt, Ct and Vt are the day’s high, low, close and volume. The close location value (CLV) ranges from −1 (close at the low) to +1 (close at the high). A/D starts at zero on the first data point and each day’s value is added to the previous total.
Trading signals
- Buy on a confirmed change of A/D from a downward to an upward direction – a long-term buy signal.
- Sell on a confirmed change from an upward to a downward direction.
- Divergence: a price making new highs while A/D fails to rise warns that the advance lacks buying support.
Technical indicators describe past prices and do not guarantee future results. Combine several indicators and test a strategy on historical data before trading it. See our disclaimer.