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Indicator:

A/D Line

The Accumulation/Distribution Line is a volume-based indicator that evaluates the relationship between price movement and volume to determine whether a security is being accumulated or distributed. By analyzing the cumulative flow of volume, it provides insights into the underlying strength of a trend and helps traders assess the potential for trend continuation or reversal. This indicator is particularly useful for confirming price movements and identifying divergence between volume and price trends.

A/D Line (Accumulation/Distribution Line) Indicator


Type of Indicator

The Accumulation/Distribution Line, often abbreviated as A/D Line, is a technical analysis indicator used in financial markets. It is a volume-based indicator that combines price and volume changes to help determine whether a market is in an accumulation (buying) or distribution (selling) phase.


Purpose

The primary purpose of the A/D Line is to identify the overall price trend and potential reversal points by analyzing the relationship between price and volume. This indicator is used to confirm the strength of a trend and to detect possible turning points.


Calculation Method

Calculating the A/D Line involves several steps:


Calculate the Money Flow Multiplier (MFM):

where:

  • CC is the closing price,

  • LL is the low price,

  • HH is the high price.

Calculate the Money Flow Volume (MFV):
Add the MFV to the previous A/D Line value:

Trading Based on the A/D Line Indicator


  1. Trend Confirmation:

    • If the A/D Line is rising along with prices, it suggests a strong uptrend. This can be interpreted as a signal to buy.

    • If the A/D Line is falling along with prices, it indicates a strong downtrend. This might be a signal to sell.


  2. Divergences:

    • Bullish Divergence: If the price reaches new lows…

​

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