Accumulation/Distribution or A/D Indicator
Accumulation/Distribution or A/D is one of the most widely used indicators for predict and confirm price changes. This is a leading momentum indicator which tracks the relationship between price and volume of a stock or similar instrument. Accumulation/Distribution indicator derived from a simpler indicator, On Balance Volume (OBV) indicator, and is used by all types of traders including day traders.
The underlying assumptions behind Accumulation/Distribution indicator are 1) volume precedes price – that is changes volume can indicate change in price, and 2) the more the volume associated with a price movement the significant the movement is and is more likely to go on.
The formula for calculating Accumulation/Distribution is
A/D is a continuous indicator which is derived by adding a days to value to previous days values to form a Accumulation/Distribution line. If the closing price is close to the day’s high, then the part of the volume is added to line so that the line moves upward indicating accumulation of stock (indicate bullish movement). If the closing price is close to the day’s low, then the part of the volume is subtracted from the line so that the line moves downwards indicating distribution of stock (indicate bearish movement). Most often movements in A/D indicator corresponds that of price movement of the stock. The divergence of A/D indicator from price movement indicates a possible trend reversal.
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The underlying assumptions behind Accumulation/Distribution indicator are 1) volume precedes price – that is changes volume can indicate change in price, and 2) the more the volume associated with a price movement the significant the movement is and is more likely to go on.
The formula for calculating Accumulation/Distribution is
| A/D = | (Close - Low) – (High - Close) (High - Low) | x Volume |
A/D is a continuous indicator which is derived by adding a days to value to previous days values to form a Accumulation/Distribution line. If the closing price is close to the day’s high, then the part of the volume is added to line so that the line moves upward indicating accumulation of stock (indicate bullish movement). If the closing price is close to the day’s low, then the part of the volume is subtracted from the line so that the line moves downwards indicating distribution of stock (indicate bearish movement). Most often movements in A/D indicator corresponds that of price movement of the stock. The divergence of A/D indicator from price movement indicates a possible trend reversal.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by Daniel Pipitone at
6:31 AM
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