Accumulation/Distribution Line
The Accumulation/Distribution Line was developed by Marc Chaikin to assess the cumulative flow of money into and out of a security.
The basic premise behind the Accumulation/Distribution Line, is that volume may indeed precede price. Volume reflects the amount of shares traded in a particular company and is a direct reflection of the money flowing into and out of a stock. Many times before a stock advances, there will be period of increased volume just prior to the move.
Chaikin's Accumulation/Distribution Line is a volume study modified by the price action over a given prior period (day, week, month), rather than simply the previous close as in Joe Granville's On Balance Volume indicator.
His formula first calculates a value based on the location of the close of the current interval, relative to the range for the interval. Then that value is multiplied by the current interval's volume, and the resulting value is plotted as the Accumulation/Distribution Line.
The Relative Closing Value ranges from plus one to minus one with the center point at zero:
If Close: | Relative Closing Value is: |
= High | +1 |
is in the upper half of range | Between 0.001 and 0.999 |
= Midpoint of range | 0 |
is in the lower half of range | Between – 0.001 and – 0.999 |
Close = Low | – 1 |
Using the Accumulation/Distribution indicator
The Accumulation/Distribution indicator is designed to identify early increases in positive or negative volume flow in order to anticipate price moves. An up-trending indicator suggests that buying pressure is strong, and a downtrend indicates that selling pressure is stronger.
The Accumulation/Distribution Line is good means to measure the volume force behind a move.
As a volume indicator, the Accumulation/Distribution Line will help to determine if the volume in a security is increasing on the advances or declines.
The Accumulation/Distribution Line can be used to isolate divergences, both positive and negative.
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