Accumulation/Distribution Line (ADL)

Name Type Prerequisite Use Cases
Accumulation/Distribution (A/D) Volume OHLC Data Confirming a trend or spotting potential reversals.

Definition

The Accumulation/Distribution Line (ADL) is a cumulative indicator that uses volume and price to assess whether a stock is being accumulated or distributed. The ADL seeks to identify divergences between the stock price and volume flow.

Mathematical Equation

\[ \text{MF Multiplier} = \frac{(Close - Low) - (High - Close)}{High - Low} \]
\[ \text{MF Volume} = \text{MF Multiplier} \times \text{Volume} \]
\[ ADL = \text{Previous ADL} + \text{MF Volume} \]

Special cases

  • Maximum possible value: Unbounded
  • Minimum possible value: Unbounded
  • Behavior: A cumulative line that rises and falls independently, tracking volume and price to assess buying/selling pressure.

Visualization

Accumulation Distribution

Trading Significance

  1. Trend Confirmation: If the ADL is rising along with the price, it confirms the uptrend (buying pressure). If ADL is falling with price, it confirms the downtrend (selling pressure).

  2. Divergence:

    • Bullish Divergence: Price makes a lower low, but ADL makes a higher low. This suggests selling pressure is waning and a reversal may be imminent.

    • Bearish Divergence: Price makes a higher high, but ADL makes a lower high, suggesting underlying weakness.