Accumulation/Distribution Stock Analysis & Accumulation/Distribution Trading Signals

Developed by Marc Chaikin

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

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

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

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

Interpretation

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

UpStock Trading Trend

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

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

DownStocks Trading Trend

If the stocks price on a stock chart is falling then the AD should also be falling. This shows that the stocks price move is being supported by volumes and the move downwards has strength behind it.

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

Stock Analysis and How to Generate Trading Signals

Below is example of a stock chart and the technical analysis explanation

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

A - Upward stock trendline on chart as well as on the Accumulation/Distribution

B - Downward stock trendline on chart as well as on the Accumulation/Distribution

C - Upward stock trendline on chart as well as on the Accumulation/Distribution

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

Stocks Trend Line Break

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

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

Comparing the stock trend lines on the indicator & the stocks price those of the AD were broken before those of the chart. This is because volume always precedes stock price.

Trading Signals

Exit

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

Entry

Once the stock 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 stocks price breaks both their stock trend lines.

Entry Signal Generated by Stock Trend Reversal