Accumulation/Distribution (A/D) is a volume-based indicator that measures cumulative money flow into and out of a security. Unlike OBV which treats all up/down days equally, A/D weights volume based on where price closes within its range. A close near the high adds more to A/D; a close near the low subtracts more. Rising A/D shows accumulation; falling A/D shows distribution.
- Volume-weighted money flow indicator
- Rising A/D = accumulation (buying pressure)
- Falling A/D = distribution (selling pressure)
How A/D Works
A/D weights volume by close location in range:
A/D Calculation:
Step 1: Money Flow Multiplier (MFM)
MFM = ((Close - Low) - (High - Close)) / (High - Low)
This ranges from -1 to +1:
+1 when close = high (all buying)
-1 when close = low (all selling)
0 when close = midpoint
Step 2: Money Flow Volume
MFV = MFM × Volume
Step 3: A/D Line
A/D = Previous A/D + MFV
Example:
High: $105, Low: $95, Close: $103, Volume: 1M
MFM = ((103-95) - (105-103)) / (105-95)
MFM = (8 - 2) / 10 = 0.6
MFV = 0.6 × 1,000,000 = 600,000
Quick Reference: A/D Signals
| A/D Pattern | Interpretation | Trading Signal |
|---|---|---|
| Rising A/D | Money flowing in | Bullish |
| Falling A/D | Money flowing out | Bearish |
| A/D confirms price | Trend is healthy | Stay with trend |
| A/D diverges from price | Smart money disagrees | Reversal warning |
Example: A/D Divergence
Bearish A/D Divergence:
| Day | Price | A/D Line | Analysis |
|---|---|---|---|
| 1 | $100 (High) | 5M | First peak |
| 10 | $95 | 4.5M | Pullback |
| 20 | $105 (Higher High) | 4.8M | A/D lower high |
| Analysis | - | - | Bearish divergence |
| 25 | $98 | 4M | Price followed A/D down |
Accumulation/Distribution measures money flow by weighting volume based on where price closes within its range. Rising A/D shows accumulation; falling shows distribution. A/D diverging from price is a powerful reversal warning—it reveals smart money activity.
A/D Trading Strategies
Trend Confirmation
A/D rising with price confirms uptrend is healthy. A/D falling with price confirms downtrend.
Divergence Trading
- Bearish: Price higher high + A/D lower high → Sell/Short
- Bullish: Price lower low + A/D higher low → Buy
Breakout Validation
A/D breaking to new highs before price often precedes price breakout.
Support/Resistance
Draw trendlines on A/D. Breaks can signal price direction changes.
A/D vs OBV
| Feature | A/D | OBV |
|---|---|---|
| Volume treatment | Weighted by close location | All or nothing |
| Sensitivity | More nuanced | More volatile |
| Gap handling | Better (considers range) | Can distort |
| Simplicity | Complex calculation | Simple |
Interpreting A/D Line
A/D Rising
More volume on closes near highs. Buyers are in control. Accumulation phase.
A/D Falling
More volume on closes near lows. Sellers are in control. Distribution phase.
A/D Flat
Balance between accumulation and distribution. Consolidation likely.
Common Mistakes
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Focusing on absolute value – Direction matters, not the number.
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Ignoring divergences – Divergences are A/D’s most powerful signal.
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Using on illiquid stocks – Low volume makes A/D unreliable.
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Short-term noise – Look at A/D trend, not daily fluctuations.
How JournalPlus Tracks A/D
JournalPlus logs A/D conditions and divergences at entry, helping you analyze whether volume-based signals improve your trade selection.
