14. Accumulation/Distribution Line (A/D Line)
1. What is Accumulation/Distribution Line (A/D Line)?
The A/D Line is a volume-based indicator that measures the cumulative flow of money into or out of a security. It combines price and volume to assess whether a stock is being accumulated (bought) or distributed (sold) over time, helping traders evaluate the underlying strength or weakness of a trend.
2. Components of A/D Line?
Close Location Value (CLV):
CLV=(Close−Low)−(High−Close)High−LowCLV = \frac{(Close - Low) - (High - Close)}{High - Low}
Money Flow Volume = CLV × Volume
A/D Line = Previous A/D Value + Current Period’s Money Flow Volume
3. Pros and Cons of A/D Line?
Pros:
Reflects volume-based buying/selling pressure.
Can detect divergence between price and volume.
Useful for confirming trend strength or reversal potential.
Cons:
May be distorted by price gaps or volatile bars.
Doesn’t differentiate between up-volume and down-volume directly.
Lags during low-volume consolidation periods.
4. What is the purpose of A/D Line in stock analysis?
To confirm or challenge price trends with volume-based evidence.
To identify bullish or bearish divergence.
To detect accumulation before breakouts or distribution before breakdowns.
5. How is A/D Line calculated or derived?
Compute CLV for the current period.
Multiply CLV by the volume to get Money Flow Volume.
Add the result to the previous A/D Line value to form the cumulative line.
6. When should traders use A/D Line?
To validate price breakouts or trend continuations.
When looking for divergence (price rising but A/D falling, or vice versa).
As part of volume confirmation strategies.
7. What are the limitations or risks of using A/D Line?
May underestimate intraday reversals, as it uses only daily data.
Can be skewed if volume spikes are unrelated to trend strength.
Not ideal in low-liquidity instruments.
8. What are common mistakes when interpreting A/D Line?
Misinterpreting short-term pullbacks as trend reversals.
Using it in isolation, without checking price structure.
Ignoring major news or earnings events that affect volume.
9. How can A/D Line be combined with other tools for better accuracy?
Combine with MACD or RSI for confirmation of momentum shifts.
Use with trendlines and moving averages to identify breakout setups.
Pair with candlestick patterns or volume spikes for entry timing.
10. How do professional traders interpret A/D Line differently from beginners?
Professionals:
Use A/D divergence to predict trend exhaustion before it happens.
Watch A/D Line as a leading indicator for institutional accumulation.
Compare A/D across multiple timeframes to confirm trend health.
Beginners:
Often ignore volume context or misread temporary divergence.
Expect the A/D Line to give exact buy/sell signals.
Use it without confirming with price action or other indicators.
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