The concept of accumulation distribution is developed by Marc Chaikin. It is a nothing but a volume based indicator mainly designed to gauge the flow of money inside as well as outside the security.
The accumulation distribution (AD) process involves technical analysis indicator which uses of volume to confirm the cost trends or warning of weak movement that would result in the price reversal.
To calculate, AD analysis indicator, when the day is in the accumulation day, then the day’s volume is added to the earlier day accumulation distribution line. On the other hand, when the day is distribution day, then the day’s volume is reduced from the previous day AD line. The best use of this indicator can be seen in determining the divergences
The AD line describes wherein the security’s current closing cost is related to the security’s low or high costs within the given duration of time. If the current close is much greater, then would be better to close the day well before. It is also said that volume gets accumulated and also when the present close is much lower than the day before, then the volume is said to be disturbed.
In case, if the volume gets accumulated, a new accumulation distribution line value is added to the previous day value to come up with a new data point. If the volume is distributed, then the new accumulation distribution value is reducing from the previous value to come up with a data point.