Accumulation/Distribution Line
Type
Volume indicator
Short introduction
Marc Chaikin developed the Accumulations/Distributions line based on the on-balance volume indicator. To represent relative price changes, the prices are weighted with the sales.
Statement
The principle of the indicator is to add, on days closing above the daily average price, this value weighted with a corresponding part of the turnover to the previous day's value of the indicator. On days that close below the daily average exchange rate, the procedure is exactly the opposite. The new value can be positive or negative, so it is always added to the previous day's value.
Formula/calculation
Accumulation/Distribution Line = [((C-L) – (H-C)) ÷ (H-L) × V] + I
where:
I = A/D value previous day
Interpretation
The indicator seeks to identify the money flow. It is particularly important that only a reasonable part of the turnover (but not the entire turnover) is included in the calculation. The further the price deviates from the mean value, the more revenue flows in.
There are two common interpretations:
- Search for divergences: A negative signal is generated when the underlying is still climbing new highs, while the indicator is no longer climbing new highs. A positive signal is generated when the actual price development still establishes new lows, but the indicator no longer establishes them.
- On the other hand, there is the possibility to calculate a moving average (MA) for the indicator and to use the intersection of the two lines as a signal generator. A buy signal is given when the indicator crosses its MA from bottom to top, a sell signal when the indicator crosses its MA from top to bottom.
It is recommended never to use the indicator alone, but only in combination with other indicators.
Default setting
- Period: 14
Example: Chart with Accumulation/Distribution Line
The Accumulation/Distribution line is shown in the "Chart Analysis" widget in a new chart window.