Accumulation/Distribution Indicator (A/D) What it is The Accumulation/Distribution (A/D) indicator is a cumulative technical indicator that combines price and volume to assess whether an asset is being accumulated (bought) or distributed (sold). It gauges the flow of money into or out of a security by looking at where the price closed within the period’s range and weighting that by volume. Key takeaways
* A/D uses the position of the close within the high-low range (the money flow multiplier) multiplied by volume to create a money flow value for each period.
* The indicator is cumulative: each period’s money flow is added to the previous A/D total.
* Rising A/D confirms a rising price trend; falling A/D confirms a downtrend.
* Divergences between price and A/D can signal potential reversals but are not reliable timing signals on their own.
Formula
1. Money Flow Multiplier (MFM)
MFM = ((Close - Low) - (High - Close)) / (High - Low)
2. Money Flow Volume (MFV)
MFV = MFM × Volume
3. Accumulation/Distribution line (A/D)
A/D = Previous A/D + MFV
For the first period, A/D = MFV.
How to calculate (step-by-step)
1. For the current period, record High, Low, Close, and Volume.
2. Compute the Money Flow Multiplier (MFM) using the close position within the range.
3. Multiply MFM by Volume to get Money Flow Volume (MFV).
4. Add MFV to the prior period’s A/D value to update the A/D line.
5. Repeat each period to build the cumulative A/D series.
What it tells you
* If A/D and price move together, the trend is supported by volume (confirmation).
* If price rises while A/D falls, buying volume may be insufficient — a possible warning of a future decline.
* If price falls while A/D rises, there may be underlying accumulation — a potential sign of an upcoming reversal.
* The magnitude (steepness) of A/D movements reflects the strength of accumulation or distribution.
A/D vs. On-Balance Volume (OBV)
* OBV adds or subtracts the entire period volume based solely on whether the close is higher or lower than the prior close.
* A/D uses a multiplier that reflects where the close lies within the period’s range (not relative to the prior close), so it can provide different insights and react differently to intraperiod price action.
Limitations and cautions
* A/D ignores price movement relative to the prior close and can produce counterintuitive results after large gaps. For example, a large gap down followed by a close near the high of the day can still push A/D up if volume is heavy.
* Divergences can persist for a long time; they are poor timing signals by themselves.
* The indicator can be distorted by low-range periods (division by very small high-low), so handle flat-price days carefully.
* Always use A/D alongside other tools: price action, chart patterns, momentum indicators, and fundamental context.
Practical tips
* Confirm A/D signals with price structure (support/resistance, trendlines) and other volume-based indicators.
* Mark unusual days (gaps, news events) that could create misleading spikes in A/D.
* Compare A/D across multiple timeframes to separate short-term noise from meaningful accumulation/distribution.
* Use A/D to spot divergence early, then wait for price confirmation before acting.
Conclusion The Accumulation/Distribution indicator is a useful volume-weighted tool for assessing supply and demand and detecting divergences between volume flow and price. It provides a different perspective than simple volume or OBV, but should be used in combination with other analyses due to potential anomalies and timing limitations. Explore More Resources