Glossary term
Accumulation/Distribution Indicator
The accumulation/distribution indicator is a volume-based technical indicator that estimates whether trading volume is supporting accumulation or distribution.
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What Is the Accumulation/Distribution Indicator?
The accumulation/distribution indicator, often called the A/D line, is a volume-based technical indicator that tries to show whether trading volume is flowing with buying pressure or selling pressure. It compares where a security closes within its daily high-low range, then weights that result by volume.
The idea is simple: a close near the high of the day suggests accumulation, while a close near the low suggests distribution. Because volume is included, a high-volume close near the top of the range moves the line more than a low-volume close.
Key Takeaways
- The A/D indicator combines price location and trading volume.
- It rises when a security tends to close near the high of its range on volume.
- It falls when a security tends to close near the low of its range on volume.
- Traders often watch divergences between price and the A/D line.
- It is a trading tool, not proof of informed buying or selling.
Basic Formula
Money Flow Multiplier=(Close-Low)-(High-Close)High-Low
Money flow volume is the multiplier times volume. The A/D line is the running total of money flow volume.
How Traders Read It
If price is rising and the A/D line is also rising, volume is broadly confirming the move. If price is rising while the A/D line is flat or falling, the rally may be less convincing because closes are not consistently occurring near the top of the daily range.
The reverse can matter too. A falling price with a firming A/D line can suggest that selling pressure is weakening, though it does not guarantee a reversal.
Example
Suppose a stock trades between $48 and $50, closes at $49.80, and volume is heavy. The close is near the high of the range, so the A/D calculation treats much of that volume as accumulation. If the same stock closes at $48.20 on similar volume, the indicator treats the day as distribution.
What It Can Miss
The A/D line uses intraday range location, not the prior close. A stock can gap down sharply, close in the upper part of that day's range, and still add to the A/D line even though shareholders lost money that day. That is why the indicator should be read with price trend, support and resistance, news, and liquidity conditions.
It also cannot tell who is buying or selling. The label accumulation can sound more precise than the data really are.
The Bottom Line
The accumulation/distribution indicator is a technical tool for reading how volume aligns with where a security closes inside its trading range. It can highlight confirmation or divergence, but it should not be treated as a stand-alone signal.