Accumulation/Distribution Indicator
The Accumulation/Distribution indicator is a technical analysis tool used to measure the money flow into and out of an asset. It can be used by traders to determine when an asset is being accumulated or distributed, providing insight into its underlying trend direction for potential future price action. Developed by Marc Chaikin in the late 1960s, it has become one of the most popular indicators among traders as it gives valuable information about market sentiment and momentum.
Calculation
The Accumulation/Distribution indicator is calculated using two factors: volume and closing prices. The formula looks like this: A/D = ((close – low) – (high – close)) / (high – low) * volume
Where:
Close=Today’s closing price
High=Today’s highest price
Low=Today’s lowest price
Volume= Today’s total trading volume Interpretation
When the value of A/D rises, it indicates that buyers are accumulating shares while sellers are distributing them, signaling that buying pressure outweighs selling pressure. Conversely, if the value falls then selling pressure outweighs buying pressure—sellers are dominating over buyers in their transactions. This could be indicative of a bearish trend developing in which case traders should use caution with new positions or consider taking profits on existing ones. Additionally, sudden spikes or dips may indicate long-term reversals in current trends so keep your eyes peeled! As always though remember to not rely solely on any single indicator but rather integrate other forms of analysis such as fundamental research for more accurate predictions about where markets may be heading next.
