Indicator:
A/D Line
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:
CCÂ is the closing price,
LLÂ is the low price,
HHÂ 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
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.
Divergences:
Bullish Divergence: If the price reaches new lows…
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