# Accumulation/Distribution Indicator (A/D)

## What Is the Accumulation/Distribution Indicator (A/D)?

The accumulation/distribution indicator (A/D) is a cumulative indicator that utilizes volume and price to assess whether a stock is being accumulated or distributed. The A/D measure tries to identify divergences between the stock price and the volume flow. This provides knowledge into how strong a trend is. In the event that the price is rising yet the indicator is falling, it proposes that buying or accumulation volume may not be sufficient to support the price rise and a price decline could be impending.

### Key Takeways

• The accumulation/distribution (A/D) line gauges supply and demand of an asset or security by taking a gander at where the price closed inside the period's range and then, at that point, increasing that by volume.
• The A/D indicator is cumulative, meaning one period's value is added or subtracted from the last.
• In general, a rising A/D line affirms a rising price trend, while a falling A/D line affirms a price downtrend.

## The Accumulation/Distribution Indicator (A/D) Formula

$\begin&\text = \frac {(\text - \text ) - ( \text - \text ) } {\text - \text } \&\textbf\&\text = \text \&\text = \text \&\text = \text \&\text = \text \ \end$
$\begin&\text = \text \times \text \ \end$
$\begin&\text{A/D} = \text{Previous A/D} + \text\&\textbf\&\text = \text \ \end$
Instructions to Calculate the A/D Line

1. Start by calculating the multiplier. Note the latest period's close, high, and low to calculate.
2. Utilize the multiplier and the current period's volume to calculate the money flow volume.
3. Add the money flow volume to the last A/D value. For the principal calculation, use money flow volume as the main value.
4. Repeat the interaction as each period ends, adding/subtracting the new money flow volume to/from the prior total. This is A/D.

## What Does the Accumulation/Distribution Indicator (A/D) Tell You?

The A/D line assists with showing how supply and demand factors are impacting price. A/D can move in the same direction as price changes or the other way.

The multiplier in the calculation provides a gauge for how strong the buying or selling was during a particular period. It does this by determining whether the price closed in the upper or lower portion of its range. This is then multiplied by the volume. In this manner, when a stock closes near the high of the period's range and has high volume, it will bring about a large A/D leap. Alternatively, in the event that the price wraps up near the high of the range however volume is low, or on the other hand on the off chance that the volume is high yet the price completes favoring the middle of the range, then the A/D won't go up to such an extent.

The same concepts apply when the price closes in the lower portion of the period's price range. Both volume and where the price closes inside the period's range determine how much the A/D will decline.

The A/D line is used to assist with assessing price trends and potentially spot impending reversals. If a security's price is in a downtrend while the A/D line is in an uptrend, then the indicator shows there may be buying pressure and the security's price may reverse to the upside. Conversely, in the event that a security's price is in an uptrend while the A/D line is in a downtrend, then, at that point, the indicator shows there may be selling pressure, or higher distribution. This warns that the price may be due for a decline.

In the two cases, the steepness of the A/D line provides understanding into the trend. A strongly rising A/D line confirms a strongly rising price. Similarly, on the off chance that the price is falling and the A/D is also falling, there is still a lot of distribution and prices are probably going to continue to decline.

## The Accumulation/Distribution Indicator (A/D) versus On-Balance Volume (OBV)

Both of these technical indicators use price and volume, albeit somewhat differently. On-balance volume (OBV) takes a gander at whether the current closing price is higher or lower than the prior close. In the event that the close is higher, the period's volume is added. In the event that the close is lower, the period's volume is subtracted.

The A/D indicator doesn't factor in the prior close and uses a multiplier based on where the price closed inside the period's range. Thusly, the indicators utilize different calculations and may provide different information.

## Limitations of Using the Accumulation/Distribution Indicator (A/D)

The A/D indicator does not factor in that frame of mind starting with one period then onto the next, and centers only around where the price closes inside the current period's range. This creates a few anomalies.

Assume a stock gaps down 20% on immense volume. The price oscillates over the course of the day and completions in the upper portion of its daily range, however is still down 18% from the prior close. Such a move would actually cause the A/D to rise. Even however the stock lost a significant amount of value, it finished in the upper portion of its daily range; subsequently, the indicator will increase, possible dramatically, due to the large volume. Traders need to monitor the price chart and mark any potential anomalies like these, as they could affect how the indicator is interpreted.

Also, one of the main purposes of the indicator is to monitor for divergences. Divergences can last a long time and are poor timing signals. At the point when divergence appears between the indicator and price, it doesn't mean a reversal is inevitable. It may require a long investment at the cost to reverse, or it may not reverse at all.

The A/D is just one instrument that can be used to assess strength or weakness inside a trend, yet it isn't without its faults. Utilize the A/D indicator in conjunction with different forms of analysis, for example, price action analysis, chart patterns, or fundamental analysis, to get a more complete image of what is moving the price of a stock.