Accumulation/Distribution

Overview

Developed by Marc Chaikin, the Accumulation/Distribution indicator attempts to assess the cumulative flow of money into and out of a trading instrument. The basic premise has always been that volume (or money flow) may be a leading indicator to price action.

With reference to stocks, "volume" typically reflects the amount of shares traded in a particular stock and is a direct reflection of the money flowing into and out of the stock. However, it's very important to note that in the foreign exchange (FOREX) market there is no central exchange. Therefore, there can be no true measure of actual money (volume) being trading in a particular currency instrument. Many FOREX brokers and charting software packages substitute what is becoming commonly referred to as "tick volume" for actual "money volume". Tick volume is simply the amount of incoming price changes (a.k.a. ticks) received during a particular chart interval (bar).

Interpretation

As a volume indicator, the A/D indicator helps to determine if volume is increasing or decreasing as price is rising or falling. Signals are typically generated using the Accumlation/Distribution indicator by looking for positive and negative divergences between the A/D line and price. The A/D indicator can also be used as a measure of strength or sustainability behind a price move. In an uptrend the A/D indicator should also be moving upwards. In a downtrend the A/D indicator should be moving downwards.

This Accumulation/Distribution indicator uses the cum() function (see Cumulate) to keep a running total of the daily values.

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