What is Accumulation / Distribution Indicator?

The term “accumulation” represents the stage of buying or the demand, and “distribution” represents the stage of selling or the supply of an asset.

The accumulation/distribution indicator ascertains the trend of an asset currently and in the future. The accumulation/distribution line evaluates an asset's or security's supply and demand by looking at where the price closed within the period's range and multiplying it by volume.

Furthermore, the accumulation/distribution indicator is a momentum indicator that traders use to identify the highs and lows of asset charts in order to predict trend turnabouts. Others refer to it as the momentum indicator.

Additionally, when trade gaps occur, the accumulation/distribution indicator may fail to take them into account. When the price of a stock rises but then falls in the middle, the gap is ignored. That could be because it’s probably complex to pinpoint small variations in volume flows.

The rate of decrease in a downtrend might be slow, but it'll be difficult to detect until the accumulation/distribution goes up.

To calculate the accumulation/distribution you need to calculate the Money Flow Multiplier first by marking the former prices of an asset (high, low, and closing).

How to calculate Money Flow multiplier:

1. Money Flow Multiplier = [(Close  -  Low) - (High - Close)] /(High - Low) 
2. Money Flow Volume = Money Flow Multiplier x Volume for the Period

To put it simply, after calculating the Money Flow Multiplier for every period, multiply it with the volume of the period.

Add the accumulation/distribution indicator's value to the Money Flow volume to calculate the accumulation/distribution indicator. Then, repeat the steps, adding or removing New Money Flow volume from the preceding total.

The accumulation/distribution is a tool that rises when the price of an asset falls, showing the tension to buy. Also, it reveals the possibility of the asset's price rising to the top. Moreover, traders can resolve whether the market is increasing or decreasing by looking for the separation between the indicator and the price.

It is possible that demand is beginning to rise following a significant drop in the price of an item, indicating that sellers are losing influence and purchasers are gaining authority. The accumulation/distribution line will begin to move in the opposite direction of the price, signaling the possibility of a reversal.