Accumulation/Distribution Technical Analysis & Accumulation/Distribution Trading Signals

Developed and Created by Marc Chaikins

This indicator is used to assess the cumulative flow of money into and out of indices.

Originally used for stock trading, when it comes to stocks "volume" is the number and amount of shares traded for a particular stock, this volume is a direct reflection of the money that's coming into and out of a stock.

The basic principle behind AD is that volume(or money flow) is a leading trading indicator of the price. (Volume precedes price).

Tick volume is the measure of price changes (ticks) received by a broker during a particular period/interval. Tick volume is incorporated by many brokers in their charting software platform.

Interpretation

This volume indicator is used to determine if volume is increasing or decreasing as the market price on a chart is rising or falling.

Up Index Trend

If the price on a chart is rising and moving upward then the Accumulation Distribution should also be rising and moving upward. This shows that the price move is being supported by volumes and the move upward has strength and is sustainable.

If on the other hand price is moving up and the volumes are not, the momentum behind the move is reducing: this creates a divergence setup between price and indicator & warns of a possible move in the opposite direction.

Down Indices Trend

If the price on a trading chart is falling and moving dowward then the AD indicator should also be falling and moving dowward. This displays that the price move is being supported by volumes & the move downwards has momentum behind it.

If on the other hand price is moving down and the volumes aren't, the momentum behind the move is reducing: this creates a divergence setup between price and AD and warns of a possible move in the opposite market direction.

Technical Analysis and How to Generate Trading Signals

Shown Below is an example of a chart and the technical analysis explanation

Accumulation/Distribution - Accumulation Distribution Indicator

From the chart above we can separate the trading chart in to three parts, part A, B & C.

A - Upwards trend line on chart & also on the Accumulation/Distribution

B - Downward trend-line on chart & also on the Accumulation/Distribution

C - Upwards trend-line on chart & also on the Accumulation Distribution

As long as the price & the indicator are moving in the same direction then the market price move has enough energy to continue moving in that particular direction such as shown above

Trendline Break

From the above chart we can see that once the trend line on the AD indicator was broken then the price trend-line was also broken.

Looking at the chart below we have added vertical lines to represent the points where the trendlines were broken, both on the price chart and the indicator.

Comparing the trend lines on the indicator and the price those of the AD indicator were broken before those of the chart. This is because the volume always precede the price.

Trend Line Break - Analysis of Accumulation/Distribution indicator

Signals

Exit

Exit signals are derived & generated when the trendline on the Accumulation Distribution is broken. A trend line break on the indicator warns of a potential reversal.

Exit Signal - Accumulation/Distribution Analysis Trade Signals

Entry

Once the trendline on the AD indicator is broken it signals of a potential reversal in direction of the price.

However if we want to take a trade in the opposite market direction it is always best to wait for a confirmation trading signal.

A confirmation signal is considered complete once both the indicator and the price breaks both their trend-lines.

Entry Signal - Generated by Trend Reversal

Entry Trading Signal Derived and Generated by Trend Reversal

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