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Accumulation Distribution
Introduction
The Accumulation/Distribution Line was developed by Marc Chaikin to assess the cumulative
flow of money into and out of the market.
AD indicator is determined by the changes in price and volume. The volume acts as
a weighting coefficient at the change of price - the higher the coefficient (the
volume) is, the greater the contribution of the price change (for this period of
time) will be in the value of the indicator. In fact, Accumulation/Distribution
indicator is a variant of the more commonly used indicator of balance volume (On
Balance Volume). They are both used to confirm price changes by means of measuring
the respective volume of sales.
When the Accumulation/Distribution indicator grows, it means accumulation (buying)
of a particular security, as the overwhelming share of the sales volume is related
to an upward trend of prices. When the indicator drops, it means distribution (selling)
of the security, as most of sales take place during the downward price movement.
Divergences between the Accumulation/Distribution indicator and the price of the
security indicate the upcoming change of prices. As a rule, in case of such divergences,
the price tendency moves in the direction in which the indicator moves. Thus, if
the indicator is growing, and the price of the security is dropping, a turnaround
of price should be expected.
Calculation
To calculate the AD value, we have to calculate first a coefficient that shows us
the relative position (RP) of the Price Close. This coefficient is between -1 and
1. If the Price Close is lower than the mid price, the RP is negative. If the PC
is higher than the mid price, RC is positive. After that we multiply RC by the Volume.
To calculate the Accumulation Distribution we just sum the values.
RP = ((PC - PL) - (PH - PC))/(PH - PL)
AD = SUM (RP * Volume, n)
Where:
RP - Relative Position Coefficient.
PH - Price High
PL - Price Low
PC - Price Close
n - Number of Periods
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Parameters
Logic - from this dropdown box we chose the logic of using of the indicator. The possible logics are:
- The AD value is rising.
We have a signal buy when the current bar value of AD is higher than the previous bar value. A signal sell appears when the current bar value of AD is lower than the previous bar value. - The AD value is falling.
We have a signal buy when the current bar value of AD is lower than the previous bar value. A signal sell appears when the current bar value of AD is higher than the previous bar value. - The AD value changes from downward to upward.
We have a signal buy when the current bar value of AD is higher than the previous bar value and the previous AD value is lower than the AD value of the bar before the previous one. A signal sell appears when the current bar value of AD is lower than the previous bar value and the previous AD value is higher than the AD value of the bar before the previous one. - The AD value changes from upward to downward.
We have a signal buy when the current bar value of AD is lower than the previous bar value and the previous AD value is higher than the AD value of the bar before the previous one. A signal sell appears when the current bar value of AD is higher than the previous bar value and the previous AD value is lower than the AD value of the bar before the previous one.
Use previous bar value - when we open a position on price different than Price Close or Day Close, we have to mark this check box. This guarantees us that at the time of opening we use the correct indicator's value.
Default parameters
- Logic - The AD rises
Usage of Accumulation Distribution
We can use the Accumulation Distribution as an Open or a Close Filter. Like an Open Filter, depending of the Logic, it allows the opening of a long or short position. When we use it as a Close Filter, when the Logic's conditions are satisfied it forces the closing of the current position.