Accumulation Distribution[contentblock id=1]
Accumulation Distribution is a popular technical analysis indicator that can help you know of impending price reversals and also confirm price trends.
This indicator relies on traded volumes of a currency pair or share to determine whether an accumulation or a distribution has taken place.
During a volume accumulation, the closing price for the day is higher than the closing price for the previous day.
This is also called the “accumulation day”.
On the other hand, in a volume distribution, the day’s closing is lower than the previous day’s closing.
Some also call it a “distribution day”.
So, how is the value of this indicator calculated?
Basically, when there is an accumulation day, volume traded during the day is added to the indicator value from the previous day.
The converse happens when a distribution day occurs – the day’s volume is subtracted from the previous day’s indicator value.
For instance, if yesterday the line was at 550,000, and today was an accumulation day with a volume of 50,000 units of a certain currency or stock, then the indicator’s line as of today will be 550,000 plus 50,000.
This means that today’s line will be at 600,000.
On the other hand, if today was a distribution day with a similar volume of 50,000, then the current line will be 500,000, since 50,000 will be subtracted from 550,000.
This indicator is most useful in identifying divergences.
In a bullish divergence, the indicator value is usually rising although the prices keep falling.
A bull divergence means that it is a good time good time to go long on a currency pair or stock or close a short position since prices are about to start rising after a reversal.
On the other hand, during a bearish divergence, the indicator shows that prices should be falling, but instead, they keep rising.
This would be a good time to exit a long position or open a short position since prices are about to start falling.
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