Accumulation/Distribution Line (A/D Line)
The Accumulation/Distribution Line, or A/D Line, is a volume-based indicator that helps traders measure the flow of money into or out of an asset. It does this by combining price movement and volume to determine whether a security is being accumulated (bought) or distributed (sold).
Developed by Marc Chaikin, the A/D Line offers more depth than simpler volume indicators because it considers where price closes within each candle. That added context helps traders spot whether volume is supporting the move—or contradicting it entirely.
How the A/D Line Works
Unlike On-Balance Volume, the A/D Line doesn’t just look at price direction. Instead, it evaluates where the price closes relative to the high and low of the candle. Then it multiplies that by the volume for the period and adds it to a running total.
The formula includes a Money Flow Multiplier, which looks like this:
Multiplier = [(Close – Low) – (High – Close)] / (High – Low)
Then:
A/D = Previous A/D + (Multiplier × Volume)
Here’s a simplified breakdown of what the A/D Line tells you:
| Price Closes | Volume Impact | What It Suggests |
|---|---|---|
| Near the high | Buying pressure | Accumulation |
| Near the low | Selling pressure | Distribution |
| In the middle | Neutral flow | No strong signal |
How Traders Use It
The A/D Line is mainly used to confirm price trends and spot divergences between price and volume behavior. If price moves up but the A/D Line lags behind, it could indicate that the rally isn’t supported by volume—and may not last.
Here’s how it’s applied in practice:
Trend Confirmation: If both price and the A/D Line are rising, the trend is likely strong. If price is rising but the A/D Line is flat or falling, that’s a red flag.
Bullish Divergence: Price makes a new low, but the A/D Line forms a higher low. This may signal hidden accumulation before a reversal.
Bearish Divergence: Price reaches new highs, but the A/D Line fails to follow. That could indicate weakening demand.
Example Setup
Imagine you’re trading a stock that’s climbing steadily. Price keeps pushing higher, but the A/D Line is flat—or worse, trending down.
That’s a sign that volume isn’t backing the move. Institutions might be selling into strength. A few candles later, price reverses sharply—and you’re glad you paid attention to the A/D Line.
On the flip side, if price is moving sideways but the A/D Line is steadily rising, that’s a hint that buying pressure is building quietly. When the breakout comes, you’re ready for it.
Pros and Cons of Using the A/D Line
Pros
Offers deeper insight than OBV by using candle structure
Excellent for spotting hidden accumulation or distribution
Helps confirm or question the strength of price trends
Works across all assets and timeframes
Cons
Can lag in very fast markets
Requires proper understanding of divergence
Not a standalone entry tool—needs confirmation
When to Use the A/D Line
Use the A/D Line when you want to go beneath the surface of a chart and understand if the current trend is real—or built on weak volume. It’s a perfect companion to price action and technical structure, especially in uncertain markets.
Whether you’re looking to avoid traps, confirm breakout strength, or spot early reversals, the Accumulation/Distribution Line gives you the clues you need. Next up learn the Volume Oscillator