Accumulation And Distribution Line

#volume #accumulation

Creator: Marc Chaikin

Uses where price closes inside the day’s high-low range, along with volume, to measure buying and selling pressure. Close near the high adds volume to the line, close near the low subtracts it.

Default period: None (cumulative line); optional 20 SMA on A/D as signal line

A single line is plotted below the chart in the Accumulation And Distribution Line indicator.

The CLV of the price is identified, and the volume is multiplied by it.

Rising ADL line represents an accumulation pattern and falling ADL line shows a distribution pattern. Crossing the ADL line of past several levels is a strong bullish sign.

Useful readings:

A/D rising with price: Uptrend backed by real buying, healthy

A/D falling with price: Downtrend backed by real selling, healthy

Price rises but A/D falls: Closes are weak inside the range, distribution behind the rally

Price falls but A/D rises: Closes are strong inside the range, accumulation behind the dip

A/D makes new high before price: Buyers loading up early, bullish clue

A/D flat while price swings: No real pressure either side, range market

Objective rules:

Bullish: A/D line crosses above its 20-period average.

Bearish: A/D line crosses below its 20-period average.

Breakout confirmation: Take a price breakout only if A/D also makes a new 20-bar high (long) or low (short)

Divergence rule: Price at new high but A/D below its last high for 2+ swings, tighten stops on longs

What makes it unique:

Unlike OBV’s all-or-nothing days, it weighs each day by where price closed inside its range. That lets it catch quiet accumulation and distribution that OBV misses.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.