The technical indicator of Accumulation Distribution (A / D) is determined by the change in price and volume. The volume acts as a weight factor when the price changes – the higher the ratio (volume), the greater the contribution of price changes (over a given time period) to the value of the indicator.
In fact, this indicator is a variant of the more common indicator of the Balance Volume. Both are used to confirm price changes by measuring the relevant trading volume.
The growth of the indicator Accumulation / Distribution (A / D) means the accumulation (purchase) of a security, since the overwhelming share of trading volume is associated with an upward price movement. When the indicator falls, this means the distribution (sale) of the security, since the overwhelming share of trading volume is associated with a downward price movement.
The discrepancy between the Accumulation / Distribution indicator and the price of the paper indicates a forthcoming price change. Usually, in case of divergence, the price trend changes in the direction of the indicator’s movement. So, if the indicator grows, and the price of paper falls, then we should expect a price turn.
Calculation of Accumulation / Distribution
To the current cumulative value of the indicator, a certain fraction of the daily volume is added or subtracted from it. The closer the closing price to the high of the day, the larger the share added. The closer the closing price to a minimum of the day, the greater the deductible stake. If the closing price is strictly between the high and the low, the indicator value does not change.
A / D (i) = ((CLOSE (i) – LOW (i)) – (HIGH (i) – CLOSE (i)) * VOLUME (i) / (HIGH (i) – LOW (i)) + A / D (i-1)
A / D (i) – value of the Accumulation / Distribution Indicator for the current bar;
CLOSE (i) – the closing price of the bar;
LOW (i) – the minimum price of a bar;
HIGH (i) – the maximum price of the bar;
VOLUME (i) – volume;
A / D (i-1) is the value of the Accumulation / Distribution Indicator for the previous bar.