The Accumulation/Distribution Line (A/D Line) is a technical analysis indicator used to measure buying and selling pressure in a stock or other financial instrument. It’s calculated by determining the relationship between the security’s price and volume, and is used to identify trends in the flow of money into or out of a stock.
The A/D Line is constructed by adding the volume for each period in which the stock closes higher than the previous period’s close, and subtracting the volume for each period in which the stock closes lower. This results in a running total, which is the A/D Line.
If the A/D Line is trending upward, it indicates that there is more buying pressure than selling pressure, and that there is a net flow of money into the stock. If the A/D Line is trending downward, it indicates that there is more selling pressure than buying pressure, and that there is a net flow of money out of the stock.
The A/D Line can also be used to identify divergences between the stock’s price and the A/D Line, which can be a sign of potential trend reversals. For example, if the stock’s price is making new highs while the A/D Line is failing to reach new highs, this could indicate that the uptrend is losing momentum and that a reversal may be imminent.
It’s important to note that the A/D Line is just one of many technical indicators that traders and investors use, and that it should not be relied upon solely in making investment decisions. As with all indicators, it’s best used in conjunction with other forms of analysis, such as trend analysis, price action, and fundamental analysis.
« Back to Financial Terms Index