Notices

Accumulation/Distribution Line

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Revision as of 19:05, 11 July 2005 by Rhody Trader (Talk | contribs)

The accumulation/distribution line is a momentum indicator which links price and volume on the assumption that the more significant the volume, the more significant the price move. It is similar to on balance volume but varies by adding only a portion of each day's volume to the cumulative total depending on the position of the closing price (see calculation)

When the accumulation/distribution line is moving up it depicts buying (accumulation) and when moving down it depicts selling (distribution). When a divergence appears between the accumulation/distribution line and the price it implies that the price will reverse. For example, if the if the accumulation/distribution line is moving up and the price of the instrument is falling then the price is likely to reverse.


Image:sab.jpg


Calculation

A portion of daily volume is added or subtracted from a cumulative total. More volume is added the nearer the close to the high for the day and more subtracted the nearer the close to the low. Nothing is added or subtracted when the close is equidistant between the day's high and low.

[(close-low)-(high-close)/(high-low)]*volume