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.