DEFINITION of 'Accumulation/Distribution'

A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally "accumulating" (buying) or "distributing" (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula:

Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period's volume

BREAKING DOWN 'Accumulation/Distribution'

For example, many up days occurring with high volume in a downtrend could signal that the demand for the underlying is starting to increase. In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and make his or her transaction decisions using other technical indicators.

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  1. Why is the Money Flow important for traders and analysts?

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