Understanding the Accumulation/Distribution Indicator
The accumulation/distribution indicator is a price and volume-based indicator used to determine the current and future trend of an asset.
It analyzes the relationship between a stock’s closing price and volume flow.
The term “accumulation” refers to the level of buying (demand), while “distribution” indicates the level of selling (supply) of an asset.
The accumulation/distribution indicator is a momentum indicator that traders use to identify tops and bottoms in asset charts, anticipating trend reversals.
It achieves this by displaying the relationship between an asset’s price and the market’s proportion of buyers and sellers.
Traders assess whether the market is bullish (increasing) or bearish (decreasing) by looking for divergences between the price and the indicator.
Following a sharp decline in an asset’s price, any subsequent increase may suggest a rise in demand, indicating that sellers are losing influence and buyers are gaining power.
The accumulation/distribution line will start moving in the opposite direction of the price, indicating a potential reversal.