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. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

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

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

    A momentum indicator that uses volume flow to predict changes ...
RELATED FAQS
  1. What is a common strategy traders implement when using the Money Flow indicator?

    A common strategy stock traders implement with the money flow indicator is to enter or exit trades according to the overbought ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  2. Active Trading Fundamentals

    How Market Psychology Drives Technical Indicators

    The tenets of market psychology underlie each and every charting tool.
  3. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  4. Active Trading

    An Introduction To Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  5. Insurance

    Exploring Oscillators and Indicators

    Find out how to use these technical analysis building blocks.
  6. Active Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.
  7. Mutual Funds & ETFs

    How To Apply Technical Indicators To Mutual Funds

    Mutual funds do not readily lend themselves to technical analysis, but investors can use common indicators to evaluate mutual funds as easily as stocks.
  8. Stock Analysis

    A Trader's Look at the S&P 500

    Moving averages are sending an important signal, and it's probably not what you think.
  9. Chart Advisor

    Is Now the Time to Invest in North America?

    Bullish chart patterns across the North American markets suggest that now might actually be a wise time to allocate closer to home.
  10. Chart Advisor

    These Oil Service Stocks Are Ready For A Move Higher

    In the oil services sector, active traders have been trying hard to establish a floor and the double bottom pattern that is appearing on the chart suggests that a short-term reversal could be ...

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center