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--- technical_indicators:accumulation_distribution_line [2019/06/24 19:38]
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+++ technical_indicators:accumulation_distribution_line [2023/07/19 21:01] (current)
jayanthi [Accumulation Distribution Line FAQs]
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 ====== Accumulation Distribution Line ======
-===== Introduction =====
+===== What Is the Accumulation Distribution Line? =====
-Developed by Marc Chaikin, the Accumulation Distribution Line is a volume-based indicator designed to measure the cumulative flow of money into and out of a security. Chaikin originally referred to the indicator as the Cumulative Money Flow Line. As with cumulative indicators, the Accumulation Distribution Line is a running total of each period's Money Flow Volume. First, a multiplier is calculated based on the relationship of the close to the high-low range. Second, the Money Flow Multiplier is multiplied by the period's volume to come up with a Money Flow Volume. A running total of the Money Flow Volume forms the Accumulation Distribution Line. Chartists can use this indicator to affirm a security's underlying trend or anticipate reversals when the indicator diverges from the security price.
+The Accumulation Distribution Line is a volume-based indicator developed by Marc Chaikin to measure the cumulative flow of money into and out of a security.
-===== Calculation =====
+Chaikin originally called the indicator the Cumulative Money Flow Line. As with cumulative indicators, the Accumulation Distribution Line is a running total of each period's Money Flow Volume.
+  * First, a multiplier is calculated based on the relationship of the close to the high-low range.
+  * Second, the Money Flow Multiplier is multiplied by the period's volume to come up with a Money Flow Volume.
+A running total of the Money Flow Volume forms the Accumulation Distribution Line. Chartists can use this indicator to affirm a security's underlying trend or anticipate reversals when the indicator diverges from the security price.
+===== How Do You Calculate the Accumulation Distribution Line? =====
 There are three steps to calculating the Accumulation Distribution Line (ADL). First, calculate the Money Flow Multiplier. Second, multiply this value by volume to find the Money Flow Volume. Third, create a running total of Money Flow Volume to form the Accumulation Distribution Line (ADL).
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 {{:technical_indicators:accumulation_distribution_line:cs-accum.xls?linkonly|Click here}} for a calculation of the Accumulation Distribution Line in an Excel Spreadsheet.
-===== Interpretation =====
+===== What Does the Accumulation Distribution Line Tell You? =====
-The Accumulation Distribution Line is a cumulative measure of each period's volume flow, or money flow. A high positive multiplier combined with high volume shows strong buying pressure that pushes the indicator higher. Conversely, a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower. Money Flow Volume accumulates to form a line that either confirms or contradicts the underlying price trend. In this regard, the indicator is used to either reinforce the underlying trend or cast doubts on its sustainability. An uptrend in prices with a downtrend in the Accumulation Distribution Line suggests underlying selling pressure (distribution) that could foreshadow a bearish reversal on the price chart. A downtrend in prices with an uptrend in the Accumulation Distribution Line indicate underlying buying pressure (accumulation) that could foreshadow a bullish reversal in prices.
+The Accumulation Distribution Line is a cumulative measure of each period's volume flow, or money flow. A high positive multiplier combined with high volume shows strong buying pressure that pushes the indicator higher. Conversely, a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower. Money Flow Volume accumulates to form a line that either confirms or contradicts the underlying price trend. In this regard, the indicator is used to either reinforce the underlying trend or cast doubts on its sustainability. An uptrend in prices with a downtrend in the Accumulation Distribution Line suggests underlying selling pressure (distribution) that could foreshadow a bearish reversal on the price chart. A downtrend in prices with an uptrend in the Accumulation Distribution Line indicates underlying buying pressure (accumulation) that could foreshadow a bullish price reversal.
 ===== ADL versus OBV =====
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 As the formula above shows, Chaikin took a different approach by completely ignoring the change from one period to the next. Instead, the Accumulation Distribution Line focuses on the level of the close relative to the high-low range for a given period (day, week, month). With this formula, a security could gap down and close significantly lower, but the Accumulation Distribution Line would rise if the close were above the midpoint of the high-low range. The chart above shows Clorox (CLX) with a big gap down and a close near the top of the day's high-low range. OBV moved sharply lower because the close was below the prior close. The Accumulation Distribution Line moved higher because the close was near the high of the day.
-===== Trend Confirmation =====
+===== Using the ADL for Trend Confirmation =====
-Trend confirmation is a pretty straight-forward concept. An uptrend in the Accumulation Distribution Line reinforces an uptrend on the price chart and vice versa. The chart below shows Freeport McMoran (FCX) and the Accumulation Distribution Line advancing in February-March, declining from April to June and then advancing from July to January. The Accumulation Distribution Line confirmed each of these price trends.
+Trend confirmation is a pretty straightforward concept. An uptrend in the Accumulation Distribution Line reinforces an uptrend on the price chart and vice versa. The chart below shows Freeport McMoran (FCX) and the Accumulation Distribution Line advancing in February-March, declining from April to June and advancing from July to January. The Accumulation Distribution Line confirmed each of these price trends.
 {{:technical_indicators:accumulation_distribution_line:acdl-3-fcxaffrm.png|Chart 3  -  Accumulation Distribution Line}}
-===== Divergences =====
+===== ADL Divergences =====
 Bullish and bearish divergences are where it starts getting interesting. A bullish divergence forms when price moves to new lows, but the Accumulation Distribution Line does not confirm these lows and moves higher. A rising Accumulation Distribution Line shows, well, accumulation. Think of this as basically stealth buying pressure. Based on the theory that volume precedes price, chartists should be on alert for a bullish reversal on the price chart.
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 {{:technical_indicators:accumulation_distribution_line:acdl-6-gcidisc.png|Chart 6  -  Accumulation Distribution Line}}
-===== Conclusion =====
+===== The Bottom Line =====
 **The Accumulation Distribution Line can be used to gauge the general flow of volume.** An uptrend indicates that buying pressure is prevailing on a regular basis, while a downtrend indicates that selling pressure is prevailing. Bullish and bearish divergences serve as alerts for a potential reversal on the price chart.  As with all indicators, it is important to use the Accumulation Distribution Line in conjunction with other aspects of technical analysis, such as [[:technical_indicators:introduction_to_technical_indicators_and_oscillators#momentum_oscillators|momentum oscillators]] and [[:chart_analysis:chart_patterns|chart patterns]]. It is not a standalone indicator.
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-For more details on the syntax to use for Accumulation Distribution Line scans, please see our [[docs>scans:indicators#accumulation_distribution|Scanning Indicator Reference]] in the Support Center.
+For more details on the syntax to use for Accumulation Distribution Line scans, please see our [[https://support.stockcharts.com/doku.php?id=scans:indicators#accumulation_distribution|Scanning Indicator Reference]] in the Support Center.
 **Note**: For the purposes of scanning, daily volume data is incomplete during the trading day. When running scans with volume-based indicators like Accumulation/Distribution, be sure to base the scan on the "Last Market Close." Examples of other volume-based indicators include Chaikin Money Flow, On Balance Volume, and the PVO.
+===== Accumulation Distribution Line FAQs =====
+==== What is the general usage of the Accumulation Distribution Line? ====
+The Accumulation Distribution Line can be used to gauge the general flow of volume, indicating whether buying or selling pressure is prevailing. It can also serve as an alert for potential reversal on the price chart when bullish and bearish divergences occur.
+==== How does volume affect the Accumulation Distribution Line? ====
+Volume plays a crucial role in the calculation of the Accumulation Distribution Line. The Money Flow Multiplier is multiplied by the period's volume to determine the Money Flow Volume, which subsequently affects the trend of the Accumulation Distribution Line. For instance, a high positive multiplier combined with high volume shows strong buying pressure that pushes the indicator higher, and a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower.
+==== What is the difference between the Accumulation Distribution Line and On Balance Volume (OBV)? ====
+The Accumulation Distribution Line and On Balance Volume are both cumulative volume-based indicators, but their calculations are different. While OBV adds a period's total volume when the close is up and subtracts it when the close is down, the Accumulation Distribution Line focuses on the level of the close relative to the high-low range for a given period.
+==== How does the Accumulation Distribution Line confirm or contradict an underlying price trend? ====
+The Accumulation Distribution Line measures volume flow, or money flow. A high positive multiplier combined with high volume shows strong buying pressure that pushes the indicator higher, confirming an uptrend. Conversely, a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower, contradicting an uptrend.
+==== Can the Accumulation Distribution Line be used as a standalone indicator? ====
+No, it is important to use the Accumulation Distribution Line in conjunction with other aspects of technical analysis, such as momentum oscillators and chart patterns, as well as price/trend analysis. It is not a standalone indicator.
 ===== Further Study =====