Accumulation/Distribution Trading Analysis & Accumulation/Distribution Trading Signals

Developed by Marc Chaikin

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

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

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

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

Interpretation

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

UpGold Trend

If the xauusd price on a chart is rising then the Accumulation/Distribution should also be rising. This portrays that the xauusd price move is being supported by volumes & the move upwards has strength and is sustainable.

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

DownXAUUSD Trend

If the xauusd price on a chart is falling then the AD should also be falling. This portrays that the xauusd price move is being supported by volumes and the move downward has strength behind it.

If on the other hand price is moving down & the volumes are not, the strength behind this move is reducing and waning: this creates divergence between price & AD & warns of a possible move in opposite direction.

Trading Analysis and Generating Signals

Below is example of a chart and the technical analysis explanation

From chart above we can separate the chart into 3 parts, part A, B and C.

A - Upward trendline on chart as well as on the AD

B - Downward trendline on chart as well as on the AD

C - Upward trendline on chart as well as on the AD

As long as the xauusd price & the indicator are moving in the same direction then the xauusd price move has enough momentum to continue heading in that direction as displayed above

XAUUSD Trend Line Break

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

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

Comparing the trendlines on the indicator & the xauusd price those of the AD were broken before those of the chart. This is because volume always precedes price.

Signals

Exit

Exit signals are generated when the trend-line on the Accumulation/Distribution is broken. A trend line break on the technical indicator warns of a possible reversal.

Entry

Once the trend line on the AD is broken it warns of a possible reversal in direction of the market.

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

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

Entry Signal Generated by Trend Reversal