What is Accumulation / Distribution indicator?
Accumulation / Distribution is a cumulative indicator that uses volume and price to determine whether an asset is accumulated or distributed, it is used to identify discrepancies between the price and the volume flow. AD indicator is similar to OBV indicator but differs in the way price is considered in the formula.
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How to use it?
The current A/D value is not important, it is better to focus on the trend of the A/D curve.
- When price and A/D make higher highs and higher lows, the uptrend will tend to continue.
- When price and A/D make lower highs and lower lows, the downtrend will tend to continue.
- During a trading range, if the A/D rises, an accumulation may be taking place: this is an upward breakout signal.
- During a trading range, if the A/D falls, a distribution may be taking place: this is a downward breakout signal.
- When the price peaks higher and the A/D fails to peak higher, the uptrend is likely to stop or reverse: this is a negative divergence.
- When the price peaks lower and the A/D fails to peak lower, the downtrend is likely to stop or reverse: this is a positive divergence.
The formula of A/D indicator:
MFM = (Close - Low) -(High - Close)High - Low
MFV = MFM Period Volume
A/D = A/Dprev +CMFV
Where:
CMFV is the Current Money Flow Volume
MFV is the Money Flow Volume
MFM is the Money Flow Multiplier
Close is the closing price
Low is the lowest price of the period
High is the highest price of the period