Accumulation/distribution index is a technical analysis indicator created by Marc Chaikin. It's a cumulative total volume, adding or subtracting each day's volume in proportion to where the close is between the day's high and low.

First a close location value is formed,

CLV= { [(close-low) -(High-Close)] /(high-Close)}

This ranges from -1 when the close is the low of the day, to +1 when it's the high. For instance when the close is 3/4 the way up the range CLV is +0.5. The accumulation/distribution index is a adds up volume multiplied by the CLV factor, ie.

accdistt = previous_accdist + Volume * CLV

The starting point for the acc/dist total, ie. the zero point, is arbitrary, only the shape of the resulting indicator is used, not the actual level of the total.

The name accumulation/distribution comes from the idea that during accumulation buyers are in control and the price will be bid up through the day, or will make a recovery if sold down, in either case more often finishing near the day's high than the low. Vice versa for distribution.
The accumulation/distribution index is similar to on balance volume, but acc/dist is based on the close within the day's range, instead of close-to-close up or down which the latter uses

Bullish Signals


A bullish signal is given when the Accumulation/Distribution Line forms a positive divergence. Be wary of weak positive divergences that fail to make higher reaction highs or those that are relatively young. The main issue is to identify the general trend of the Accumulation/Distribution Line. A two-week positive divergence may be a bit suspect. However, a multi-month positive divergence deserves serious attention.


Bearish Signals

The same principles that apply to positive divergences apply to negative divergences. The key issue is to identify the main trend in the Accumulation/Distribution Line and compare it to the underlying security. Young negative divergences, or those that are relatively flat, should be looked upon with a healthy dose of skepticism.

Conclusions

The Accumulation/Distribution Line is good means to measure the volume force behind a move.
  2. As a volume indicator, the Accumulation/Distribution Line will help to determine if the volume in a security is increasing on the advances or declines.
  3. The Accumulation/Distribution Line can be used to gauge the general flow of money. An uptrend indicates that buying pressure is prevailing and a downtrend indicates that selling pressure is prevailing.
  4. The Accumulation/Distribution Line can be used to spot divergences, both positive and negative
  5. The Accumulation/Distribution Line can be used to confirm the strength and sustainability behind a move.
There are some drawbacks to the Accumulation/Distribution Line, though.
The indicator does not take gaps into consideration. A stock that gaps up and closes midway between the high and the low will not receive any credit for the advance off of the gap. A series of gaps could go largely undetected.

Because the Accumulation/Distribution Line is clearly tied to price movement, specifically the close, it will sometimes move in step with the underlying security and yield few divergences.

It sometimes difficult to detect subtle changes in volume flows. The rate of change in a downtrend could be slowing, but it may be impossible to detect until the Accumulation/Distribution Line turns up. This drawback has been addressed in the form of the Chaikin Oscillator or Chaikin Money Flow, which are next in the education series