Accumulation/Distribution Line (A/D)
Overview
The Accumulation/Distribution Line (A/D) is a volume-based technical indicator created by Marc Chaikin in the 1970s. It measures the cumulative flow of money into and out of a security by combining price and volume data. The indicator operates on the principle that if securities close higher than their opening price, they are likely accumulating (being bought), while closing lower indicates distribution (being sold).
The A/D line is particularly effective at revealing the underlying momentum behind price movements by correlating price changes with volume levels. This helps traders discern whether accumulation or distribution is dominating market sentiment, often revealing hidden buying or selling pressure before it becomes apparent in price action alone.
Interpretation & Trading Signals
Divergence Signals:
- Bullish Divergence: Price makes lower lows while A/D makes higher lows - signals stealth accumulation and potential upward reversal
- Bearish Divergence: Price makes higher highs while A/D makes lower highs - indicates distribution and potential downward reversal
- Timing: Allow 1-2 weeks for divergence signals to develop for best reliability
Trend Confirmation:
- Strong Uptrend: Both price and A/D line making new highs together
- Strong Downtrend: Both price and A/D line making new lows together
- Weak Trend: Price and A/D moving in opposite directions suggests trend weakness
Key Considerations:
- Volume Precedes Price: A/D often signals reversals before they appear in price charts
- Gap Limitations: Trading gaps are not factored into calculations, which may distort signals
- Best Practices: Use with other indicators like RSI, moving averages, or Chaikin Oscillator for confirmation
- Close Location Value: Ranges from -1 to +1, with 0 meaning close at midpoint of range
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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