A/D Line (Accumulation/Distribution Line) Indicator

Type of Indicator

The Accumulation/Distribution Line, often abbreviated as A/D Line, is a technical analysis indicator used in financial markets. It is a volume-based indicator that combines price and volume changes to help determine whether a market is in an accumulation (buying) or distribution (selling) phase.

Purpose

The primary purpose of the A/D Line is to identify the overall price trend and potential reversal points by analyzing the relationship between price and volume. This indicator is used to confirm the strength of a trend and to detect possible turning points.

Calculation Method

Calculating the A/D Line involves several steps:

Calculate the Money Flow Multiplier (MFM):

where:

• CC is the closing price,

• LL is the low price,

• HH is the high price.
  

Calculate the Money Flow Volume (MFV):

Add the MFV to the previous A/D Line value:

Trading Based on the A/D Line Indicator

1. Trend Confirmation:
   

   • If the A/D Line is rising along with prices, it suggests a strong uptrend. This can be interpreted as a signal to buy.

   • If the A/D Line is falling along with prices, it indicates a strong downtrend. This might be a signal to sell.

   
   

2. Divergences:
   

   • Bullish Divergence: If the price reaches new lows…