The accumulation/distribution line was created by Marc Chaikin to determine the flow of money into or out of a security. It should not be confused with the 澳洲幸运5开奖号码历史查询:advance/decline line. While their initials might be the same, these are entirely different indicators, as are their users. The advance/decline line provides insight into market movements and the 澳洲幸运5开奖号码历史查询:accumulation/distribution line i🦩s of use to traders seeking to measure buy/sell pressure on a security or confirm the strength of a trend.  

Close Location Value

The first step in creating the accumulation/distribution (A/D) line is finding the 澳洲幸运5开奖号码历史查询:close location value (CLV), which looks at the location of the close and compares it to the range for a𒁃 given period (one day, week, or month). The CLV will have a value from +1 to -1:

• A value of zero would mean that the price closed halfway between the high and low of the range.
• A value of +1 means the close is equal to the high of the range.
• A value of -1 means the close is equal to the low of the range.

The CLV can be calculated as follows:

$\begin{aligned} &\text{CLV} = \frac { ( \text{C} - \text{L} ) - ( \text{H} - \text{C} ) }{ \text{H} - \text{L}} \\ &\textbf{where:} \\ &\text{C} = \text{closing price} \\ &\text{H} = \text{high of the price range} \\ &\text{L} = \text{low of the price range} \\ \end{aligned}$​CLV=H−L(C−L)−(H−C)​where:C=closing priceH=high of the price rangeL=low of the price range​

The CLV is then multiplied by the corresponding period's volume, and the total will form the A/D line. For a look at the CLV's precursor, the 澳洲幸运5开奖号码历史查询:on-balance volume read On-Balance Volume: The Way To Smart Money.

Benefits and Drawbacks of Using the A/D Line

In some instances, 🦹using the A/D line can give traders a 🔴clear advantage:

• Monitor General Money Flow - The A/D line can be used as a gauge for the general flow of money. An A/D line's move higher is a signal that buying pressure is starting to prevail. On the flip side, an A/D line's downward move signals increased selling pressure is beginning to gain a foothold.
• Confirmation - You can also use the A/D line to confirm the strength, and possibly the longevity, of a current move.

There are also a few drawback𒅌s to keep in mind when analyzing a security using the A/D line:

• Trading Gaps - The A/D line does not take trading gaps into consideration so these gaps, when they occur, may not be factored into the A/D line at all. Therefore, if a stock's price has gapped upward but closes around the midpoint, that gap will be ignored because the A/D line is formulated using 澳洲幸运5开奖号码历史查询:closing prices.
• Minor Changes - Sometimes it can be difficult to detect minor changes in volume flows. The 澳洲幸运5开奖号码历史查询:rate of change in a 澳洲幸运5开奖号码历史查询:downtrend could be slowing, but this would be difficult (if not impossible) to detect until the A/D line turned upward. 

Bullish and Bearish Signals

The A/D line creates both bullish and bearish signals. These signals rely on 澳洲幸运5开奖号码历史查询:divergence and 澳洲幸运5开奖号码历史查询:confirmation.

Bullish Signals

Bullish signals occur when the price of a security is moving downward or is in a downtrend, but A/D line trends upward (see Figure 1). This divergence signals increased buying pressure, which can indicate weakening seller strength. It is usually followed by a change in the𒆙 trend of the security from dow🌞nward to upward.

Figure 1: A chart of Goldman Sachs (NYSE:  GS) clearly shows that the curr🔥ent A/D line has moved positively while the stock continues to be in a downward trend.

Bearish Signals

A bearish signal is formed when the A/D line trends downward, but the price of the security is in an uptrend (see Figure 2). Selling pressure is begi💞nning to increase, usually signaling a future downtrend in the price.

Figure 2: A chart of AT&T (NYSE: ATT) shows the A/D line moving downward while the stock price continues🍨 its uptrend. While the divergence is early, what y🍌ou are looking for is a separation between the price and the A/D line.

Spotting a Divergence

In order to spot bearish or bullish signals, a trend must be detectable in the underlying security. Once this has been established, begin looking for a divergence from that trend. When spotting these 澳洲幸运5开奖号码历史查询:divergences, either bullish or bearish, it is best to allow a week or two for the signals to develop. In the case of bearish patterns, keep a💫n eye out for flat signals or those lacking a sharp divergence – these ca൩n also signal that no future change is probable. 

Other Indicators

Other indicators cꦗan be used along with the A/D🍎 line:

Money Flow Index

The 澳洲幸运5开奖号码历史查询:money flow index (MFI) is a volume-weighted momentum 澳洲幸运5开奖号码历史查询:indicator calculated using a 14-day period. This indicator compares positive 澳洲幸运5开奖号码历史查询:money flow to negative money flow, creating an indicওator that can then be com𝄹pared to the price of the security to identify the current strength or weakness of a trend. 

MFI has a scale from 0-100. This scal𓆏e is a range:

• A security close to 100 usually signals an 澳洲幸运5开奖号码历史查询:overbought position. In reality, an overbought position can be signaled by an MFI value around 80.
• A security near zero will signal an oversold position. A value of around 20 usually qualifies a position as oversold.

Relative Strength Index

Another indicator that can be used with the A/D line is the 澳洲幸运5开奖号码历史查询:relative strength index (RSI), a momentum 澳洲幸运5开奖号码历史查询:oscillator. RSI is calculated by taking the magnitude of a stock's recent gains and comparing it to the magnitude of a stock's recent losses. RSI has a number range from 0-100. Like MFI, it is used primarily to highlight overbought and oversold conditions. RSI is best used as a 澳洲幸运5开奖号码历史查询:complement to another tech𒊎nical tool to analyze a security. 

Combining Indicators and Oscillators

While using the A/D line by itself is ♈indeed feasible, it is even more advantageous to add either MFI, RSI, or both. Since MFI and RSI both provi💛de ranges, they can be used to spotlight extreme conditions the A/D line was not designed to spotlight.

While RSI and MFI both attempt to highlight overbought or oversold po♐sitions, they go about it in different ways:

• MFI measures the flow of money into a security, whether that money is positive or negative.
• RSI compares the magnitude of a stock's recent gains to its recent losses.

N🀅either of these technical tools ove꧟rlaps, so they can indeed be used in conjunction with the A/D line.

Examples of the A/D Line

The following is a three-month chart of Kellogg Co. (NYSE: K). This is a perfect example of the A/D line showing us that the strength of the uptrend is indeed sound. As the trend coꦡntinues upward, the A/D shows that this uptrend has longevity. Even after a minor drop in the stock price starting August 11, 2008, the A/D line continued to signal strength. The stock then started to turn around again.

Figure 3

The next example is Pfizer Inc. (NYSE: PFE). In this two-m🅷onth chart, the A/D line confirmed both the uptrend and the downtrend. At the right of the chart, the stock indicates it is beginning to follow the lead the A/D line signaled early on in August 200🔯8.

Figure 4

The following is a two-month chart of Apple Inc. (Nasdaq: AAPL). The A/D line and stock price have gone ha🍃nd in hand. Apple has been on a downtrend, and the A/D line has been confirming existing selling pressure on the stock, forcing it to go down. The A/D line is confirming a downtrend at the latest date on the chart.

Figure 5

The Bottom Line

The A/D line is an effective tool for spotlighting buying and selling pressure on a security. It is also a fantastic way to confirm an existing trend. Using the A/D line alone is one way to analyze a security, but it can also be used with either MFI or RSI to refine an analysis. Since both RSI and MFI work well with the A/D line, using them together can help provide a better sense of overbought or oversold situations. In the end, the A/D line is an effective tool in any trader's arsenal.