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Example of A/D Analysis (Accumulation/Distribution Analysis)

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:

A/D Analysis Example

Example of A/D Analysis

Money Flow Multiplier:
(CloseLow) – (HighClose) / (HighLow)

Money Flow Volume:
Money Flow Multiplier × Volume

DayClose PriceHighLowVolumeMoney Flow MultiplierMoney Flow Volume
1100105951,0000.000
2102107981,2000.40480
31041081001,5000.50750
41031061011,3000.14182
51051101021,6000.60960

Step-by-Step Analysis:

  Money Flow Multiplier Calculation:
Formula Display

Money Flow Formulas

Money Flow Multiplier:
(CloseLow) – (HighClose) / (HighLow)

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.

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