The Accumulation/Distribution Line (A/D Line) is a volume-based indicator created by Marc Chaikin that helps measure the cumulative flow of money into or out of a security. It combines price and volume to determine whether a stock is being accumulated (bought) or distributed (sold). The A/D Line rises when the closing price is near the high of the day and volume is strong, and it falls when the closing price is near the low. This indicator helps confirm trend strength, direction, and potential reversals.
Significance
- Tracks accumulation and distribution based on price close and volume.
- Confirms trends when A/D Line moves in the same direction as price.
- Signals reversals through divergence between price and A/D Line.
- Helps identify hidden buying or selling pressure.
- Works well with price action and other volume indicators.
Indicator Components & Values
- A/D Line → A cumulative line that adds or subtracts volume based on price closing position.
- Money Flow Multiplier → Measures where the close falls within the day’s range.
- Money Flow Volume → Multiplier × volume, added to the running total of the A/D Line.
- No fixed range → The A/D Line is a running total, so interpretation is based on direction and divergence.
- Direction of Line →
- Rising A/D → Buying pressure (accumulation)
- Falling A/D → Selling pressure (distribution)
Trading Strategy
- Trend Confirmation → Trade in the direction of the price trend when A/D Line moves the same way.
- Divergence Strategy → Buy when price falls but A/D Line rises (bullish divergence); sell when price rises but A/D Line falls (bearish divergence).
- Breakout Confirmation → Enter when price breaks a key level and A/D Line confirms the move.
- A/D + Moving Average → Use A/D Line with a trend-following MA to confirm trend strength.
- A/D + RSI or MACD → Combine with momentum indicators for stronger trade signals.
