Last updated on October 23rd, 2024 at 02:55 pm
Accumulation/Distribution (A/D) Analysis is a technical indicator used in financial markets to assess the relationship between stock prices and trading volume. It helps determine whether a stock is being accumulated (bought) or distributed (sold). The indicator calculates the “money flow” based on the price movement and volume. When the A/D line trends upwards, it indicates accumulation, while a downward trend suggests distribution.
Example of A/D Analysis in Action:
Let’s say we are analyzing the stock of a company over a certain period. For simplicity, we take data over five trading days with the following information:
Example of A/D Analysis
Money Flow Multiplier:
(Close – Low) – (High – Close) / (High – Low)
Money Flow Volume:
Money Flow Multiplier × Volume
| Day | Close Price | High | Low | Volume | Money Flow Multiplier | Money Flow Volume |
|---|---|---|---|---|---|---|
| 1 | 100 | 105 | 95 | 1,000 | 0.00 | 0 |
| 2 | 102 | 107 | 98 | 1,200 | 0.40 | 480 |
| 3 | 104 | 108 | 100 | 1,500 | 0.50 | 750 |
| 4 | 103 | 106 | 101 | 1,300 | 0.14 | 182 |
| 5 | 105 | 110 | 102 | 1,600 | 0.60 | 960 |
Step-by-Step Analysis:
Money Flow Multiplier Calculation:Money Flow Formulas
Money Flow Multiplier:
(Close – Low) – (High – Close) / (High – Low)
This formula determines where the closing price sits within the daily price range. A positive multiplier suggests strong buying, while a negative value indicates selling pressure.
2. Money Flow Volume Calculation:
Money Flow Volume:
Money Flow Multiplier × Volume
The Money Flow Volume reflects the dollar amount associated with the strength of buying or selling.
3. Accumulation/Distribution Line:
The A/D line is calculated by summing the Money Flow Volumes over the analyzed period. Using the table:
• Day 1: A/D = 0
• Day 2: A/D = 0 + 480 = 480
• Day 3: A/D = 480 + 750 = 1230
• Day 4: A/D = 1230 + 182 = 1412
• Day 5: A/D = 1412 + 960 = 2372
Interpretation:
• The A/D line has consistently risen, suggesting that the stock is being accumulated, which implies growing buying interest.
• If the price were rising but the A/D line was declining, it would signal potential weakness, indicating that the rise in price is not supported by strong buying volume.Conclusion:
A/D analysis is a powerful tool for investors to evaluate market trends and the strength of price movements. By comparing price and volume behavior, investors can better determine whether a stock is under accumulation or distribution, helping guide buy or sell decisions.
