Accumulation/Distribution

AAA

DEFINITION of 'Accumulation/Distribution'

An indicator that tracks the relationship between volume and price. It is often considered a leading indicator because it shows when a stock is being accumulated or distributed, foreshadowing major price moves.

When the Accumulation/Distribution line is moving in the same direction as the price trend, it confirms the trend. When the Accumulation/Distribution line is moving in the opposite direction of the price trend, it indicates the price trend may not be sustainable.

The indicator has a three step calculation:

  1. Money Flow Multiplier = [(close  -  low) - (high - close)] /(high - low) 
 
  2. Money Flow Volume = Money Flow Multiplier x volume for the period
 
  3. Accumulation/Distribution= previous Accumulation/Distribution + current period's Money Flow Volume
 

INVESTOPEDIA EXPLAINS 'Accumulation/Distribution'

The indicator is primarily used to confirm price trends, or spot potential trend changes in price based on divergence with the Accumulation/Distribution line. 

The indicator is primarily used to confirm price trends, or spot potential trend changes in price based on divergence with the Accumulation/Distribution line.

The indicator looks at each period individually, and whether the price closes in the upper or lower portion of the period's (day's) range. This means not all divergences will result in a price trend reversal. Occasionally anomalies will occur where the price is trending lower (higher) but the indicator is rising (falling), because even though the price trend is down, each day the price is finishing in the upper portion of its daily range. High volume days can accentuate this characteristic. 

Therefore, the indicator is different from other cumulative volume indicators, such as On-Balance Volume (OBV). 

RELATED TERMS
  1. Mass Index

    A form of technical analysis that looks at the range between ...
  2. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  3. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
  4. Negative Volume Index - NVI

    A technical indicator that relies on changes in a security’s ...
  5. Force Index

    The Force Index is an oscillator that fluctuates above and below ...
  6. Vortex Indicator - VI

    An oscillator composed of two lines--an uptrend line (VI+) and ...
Related Articles
  1. Playing Penny Stock-Like ETFs
    Stock Analysis

    Playing Penny Stock-Like ETFs

  2. Hypothesis Testing in Finance: Concept ...
    Active Trading Fundamentals

    Hypothesis Testing in Finance: Concept ...

  3. What You Need To Know About COBRA Health ...
    Insurance

    What You Need To Know About COBRA Health ...

  4. Technical Top-Down Investing: Analyzing ...
    Retirement

    Technical Top-Down Investing: Analyzing ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center