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Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal.

Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term 'accumulation day'
Distribution: Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term 'distribution day'
Therefore, when a day is an accumulation day, the day's volume is added to the previous day's Accumulation Distribution Line. Similarly, when a day is a distribution day, the day's volume is subtracted from the previous day's Accumulation Distribution Line.

The main use of the Accumulation Distribution Line is to detect divergences between the price movement and volume movement.

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Category Howto & DIY

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