The accumulation/distribution line was created by Marc Chaikin to determine the flow of money into or out of a security. It should not be confused with the 澳洲幸运5官方开奖结果体彩网:advance/decline line. While their initials might be the same, these are entirely different indicators, as are their users. The advance/decline line provides insight into market movements and the 澳洲幸运5官方开奖结果体彩网:accumulation/distribution line is of use to traders seeking to measure buy/sell pressure on a 🦩security or confirm the strength of a trend꧑.  

Close Location Value

The first step in creating the accumulation/distribution (A/D) line is finding the 澳洲幸运5官方开奖结果体彩网:close location value (CLV), which looks at the location of the close and compares it to the range for a given period (one day, week, or month). The CLV will have a value from +1 to -1:𝓰

• A value of zero would mean that the price closed halfway between the high and low of the range.
• A value of +1 means the close is equal to the high of the range.
• A value of -1 means the close is equal to the low of the range.

The CLV can be calculated as follows:

$\begin{aligned} &\text{CLV} = \frac { ( \text{C} - \text{L} ) - ( \text{H} - \text{C} ) }{ \text{H} - \text{L}} \\ &\textbf{where:} \\ &\text{C} = \text{closing price} \\ &\text{H} = \text{high of the price range} \\ &\text{L} = \text{low of the price range} \\ \end{aligned}$​CLV=H−L(C−L)−(H−C)​where:C=closing priceH=high of the price rangeL=low of the price range​

The CLV is then multiplied by the corresponding period's volume, and the total will form the A/D line. For a look at the CLV's precursor, the 澳洲幸运5官方开奖结果体彩网:on-balance volume read On-Balance Volume: The Way To Smart Money.

Benefits and Drawbacks of Using the A/D Line

In some instances,ಞ using the A/D line can give traders a clear advantage:

• Monitor General Money Flow - The A/D line can be used as a gauge for the general flow of money. An A/D line's move higher is a signal that buying pressure is starting to prevail. On the flip side, an A/D line's downward move signals increased selling pressure is beginning to gain a foothold.
• Confirmation - You can also use the A/D line to confirm the strength, and possibly the longevity, of a current move.

There are also a few drawbacks to keep in mind when analyzing a security ౠusing the🔜 A/D line:

• Trading Gaps - The A/D line does not take trading gaps into consideration so these gaps, when they occur, may not be factored into the A/D line at all. Therefore, if a stock's price has gapped upward but closes around the midpoint, that gap will be ignored because the A/D line is formulated using 澳洲幸运5官方开奖结果体彩网:closing prices.
• Minor Changes - Sometimes it can be difficult to detect minor changes in volume flows. The 澳洲幸运5官方开奖结果体彩网:rate of change in a 澳洲幸运5官方开奖结果体彩网:downtrend could be slowing, but this would be difficult (if not impossible) to detect until the A/D line turned upward. 

Bullish and Bearish Signals

The A/D line creates both bullish and bearish signals. These signals rely on 澳洲幸运5官方开奖结果体彩网:divergence and 澳洲幸运5官方开奖结果体彩网:confirmation.

Bullish Signals

Bullish signals occur when the price of a security is moving downward or is in a downtrend, but A/D line trends upward (see Figure 1). This divergence signals increased buying pressure, which can indicate weakening seller strength. It is usually followed by a change in the trend of the▨ security from dꦅownward to upward.

Figure 1: A chart of Goldman Sachs (NYSE:  GS) clearly shows that the current A/D line has moved positively while the stock continues to be in a downwa﷽rd trend.

Bearish Signals

A bearish signal is formed when the A/D line trends downward, but the price of the security is in an uptrend (see Figure 2). Sellin🎉g pressure is beginning to increase, usually signaling a future doꦡwntrend in the price.

Figure 2: A chart of AT&T (NYSE: ATT) shows the A/D line moving downwa♚rd while the stock price continues its uptrend. While the divergence is early, what you are looking for is a se൲paration between the price and the A/D line.

Spotting a Divergence

In order to spot bearish or bullish signals, a trend must be detectable in the underlying security. Once this has been established, begin looking for a divergence from that trend. When spotting these 澳洲幸运5官方开奖结果体彩网:divergences, either bullish or bearish, it is best to allow a week or two for the signalꩲs to develop. In the case of bearish patterns, keep an e📖ye out for flat signals or those lacking a sharp divergence – these can also signal that no future change is probable. 

Other Indicators

Other in🐟dicators can be used along wiꦑth the A/D line:

Money Flow Index

The 澳洲幸运5官方开奖结果体彩网:money flow index (MFI) is a volume-weighted momentum 澳洲幸运5官方开奖结果体彩网:indicator calculated using a 14-day period. This indicator compares positive 澳洲幸运5官方开奖结果体彩网:money flow to negative money flow, creating an indicator that can then be co༒🍸mpared to the price of the security to identify the current strength or weakness of a trend. 

MFI has a scℱale from 0-100. This scale is a range:🐽

• A security close to 100 usually signals an 澳洲幸运5官方开奖结果体彩网:overbought position. In reality, an overbought position can be signaled by an MFI value around 80.
• A security near zero will signal an oversold position. A value of around 20 usually qualifies a position as oversold.

Relative Strength Index

Another indicator that can be used with the A/D line is the 澳洲幸运5官方开奖结果体彩网:relative strength index (RSI), a momentum 澳洲幸运5官方开奖结果体彩网:oscillator. RSI is calculated by taking the magnitude of a stock's recent gains and comparing it to the magnitude of a stock's recent losses. RSI has a number range from 0-100. Like MFI, it is used primarily to highlight overbought and oversold conditions. RSI is best used as a 澳洲幸运5官方开奖结果体彩网:complement to another technical tool to a🐻nalyze a💧 security. 

Combining Indicators and Oscillators

While using the A/D line by itself is indeed feasible, it is even more advantag✤eous to add either MFI, RSI, or both. Since MFI and RSI both provide ranges, they can be used to spotlight extreme conditions the A/D line was no🐲t designed to spotlight.

While RSI and MFI both attempt to highlight overbought or oversold positions🍒, they go about it in differen꧟t ways:

• MFI measures the flow of money into a security, whether that money is positive or negative.
• RSI compares the magnitude of a stock's recent gains to its recent losses.

Neither of these technical tools overlaps, so they can indeed be used in conjunction🐼 with the A/D line.

Examples of the A/D Line

The following is a three-month chart of Kellogg Co. (NYSE: K). This is a perfect example of the A/D line showing us that the strength of the uptrend is indeed sound. As the trend continues upward, the A/D shows that this uptrend has longevity. Even 𝕴after a minor drop in the stock price starting August 11, 2008, the A/D line continued to signal strength. The stock then started to turn around again.

Figure 3

The next example is Pfizer Inc. (NYSE: PFE). In this two-month chart, the A/D line confirmed both the uptrend 🉐and the downtrend. At the right of the chart, the stock indicates it is beginning to follow the lead the A/D line signaled early on in August 2008.

Figure 4

The following is a two-month chart of Apple Inc. (Nasdaq: AAPL). The A/D line and stock price have gone hand in hand. Apple has been on a downtrend, and the A/D line has been confirming existing selling pressure on the stock, forcing it to go down. The A/D line is confirming a downtrend at the la꧃test date on the chart.

Figure 5

The Bottom Line

The A/D line is an effective tool for spotlighting buying and selling pressure on a security. It is also a fantastic way to confirm an existing trend. Using the A/D line alone is one way to analyze a security, but it can also be used with either MFI or RSI to refine an analysis. Since both RSI and MFI work well with the A/D line, using them together can help provide a better sense of overbought or oversold situations. In the end, the A/D line is an effective tool in any trader's arsenal.