Investopedia | Accumulation/Distribution Indicator (A/D): What it Tells You

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What Is the Accumulation/Distribution Indicator (A/D)?

The accumulation/distribution indicator (A/D) is a cumulative indicator that uses volume and price to assess whether a stock is being accumulated or distributed. The A/D measure seeks to identify divergences between the stock price and the volume flow. This provides insight into how strong a trend is. If the price is rising but the indicator is falling, then it suggests that buying or accumulation volume may not be enough to support the price rise and a price decline could be forthcoming.

KEY TAKEWAYS

• The accumulation/distribution (A/D) line gauges supply and demand of an asset or security by looking at where the price closed within the period’s range and then multiplying that by volume.
• The A/D indicator is cumulative, meaning one period’s value is added or subtracted from the last.
• In general, a rising A/D line helps confirm a rising price trend, while a falling A/D line helps confirm a price downtrend.

The A/D line can help assess price trends and potentially spot forthcoming reversals. If a security’s price is in a downtrend while the A/D line is in an uptrend, then the indicator shows there may be buying pressure and the security’s price may reverse to the upside. Conversely, if a security’s price is in an uptrend while the A/D line is in a downtrend, then the indicator shows there may be selling pressure, or higher distribution. This warns that the price may be due for a decline.

In both cases, the steepness of the A/D line provides insight into the trend.1 A strongly rising A/D line confirms a strongly rising price. Similarly, if the price is falling and the A/D is also falling, then there is still plenty of distribution and prices are likely to continue to decline.