Accumulation/Distribution

Type

Momentum/Volume Leading Indicator of price movement

History

The Accumulation/Distribution Line was developed by Marc Chaikin to assess the cumulative flow of money into and out of a security.

How does it work?

The Accumulation/Distribution is a momentum indicator based on the premise that the more volume that accompanies a price move, the more significant the price move.

The Accumulation/Distribution is actually a variation of the more popular On Balance Volume indicator. Both of these indicators attempt to confirm changes in prices by comparing the volume with prices.

When the Accumulation/Distribution moves up, it shows that the security is being accumulated (buying pressure), as most of the volume is associated with an upward price movement.

When the indicator moves down, it shows that the security is being distributed (selling pressure), as most of the volume is associated with a downward price movement.

Divergences between the Accumulation/Distribution and the security's price imply a change is imminent. When a divergence does occur, prices usually change to confirm the Accumulation/Distribution. For example, if the indicator is moving up and the security's price is going down, prices will probably reverse.

Trading Signals

Settings

Sharechart Default: 14 days

Example

Coca Cola Amatil Limited was in a trading range of $5.65 and $5.94 for quite a few months.

However, while the price of the stock moved down towards the bottom of the range in mid October, the Accumulation/Distribution line was heading up signalling accumulation when it broke through resistance possible entry point (approx $5.80-88).

The price of the stock then broke through the trading range and headed towards $6.23 where the Accumulation/Distribution line showed signs of distribution possible exit point (approx $6.20).

Also, note Coca Cola Amatil was in a 29c trading range. Once it broke through resistance at $5.94 it moved up 29c to $6.23 where there were signs of distribution.

The Accumulation/Distribution line may have resulted in a profitable trade of approx 5 to 7% in less than 13 trading days.