Accumulation/Distribution Stock Indices Technical Analysis & Accumulation/Distribution Stock Indices Signals

Developed by Marc Chaikin

This indices technical indicator is used to assess the cumulative flow of money into and out of a stock indices.

Originally used for stocks trading, when it comes to stocks trading "volume" is the amount of shares traded in a particular stock, this volume is a direct reflection of the money that is coming into and out of a stock.

The basic principle behind AD is that volume(or money flow) is a leading indicator of the stock index price. (Volume precedes index price).

Tick volume is the measure of stock index price changes (ticks) received by a broker during a particular trading period/interval. Tick volume is incorporated by many stock index trading brokers in their charting software.

Interpretation

This volume indicator is used to determine if volume is increasing or decreasing as the stock index price on a stock indices chart is rising or falling.

UpIndices Trading Trend

If the stock index price on a stock indices chart is rising then the Accumulation/Distribution should also be rising. This shows that the stock index price move is being supported by volumes and the move upwards has strength and is sustainable.

If on the other hand stock index price is moving up and the volumes are not, the strength behind the move is reducing; this creates divergence between stock index price and indicator & warns of a possible move in the opposite direction.

DownStock Indices Trading Trend

If the stock index price on a stock indices chart is falling then the AD should also be falling. This shows that the stock index price move is being supported by volumes and the move downwards has strength behind it.

If on the other hand stock index price is moving down and the volumes are not, the strength behind the move is reducing; this creates divergence between stock index price and AD and warns of a possible move in the opposite direction.

Indices Technical Analysis & How to Generate Signals

Below is example of a stock indices chart and the technical analysis explanation

From chart above we can separate the chart into 3 parts, part A, B & C.

A - Upwards stock indices trend-line on chart as well as on the Accumulation/Distribution

B - Downwards stock indices trend-line on chart as well as on the Accumulation/Distribution

C - Upwards stock indices trend-line on chart as well as on the Accumulation/Distribution

As long as the stock index price & the indicator are moving in the same direction then the stock index price move has enough momentum to continue moving in that direction as shown above

Indices Trend-Line Break

From the above chart we can see that once the trend line on the AD was broken then the stock index price trend line was also broken.

Looking at the chart below we have added vertical lines to represent the points where the trend lines were broken, both on the stock index price chart and the indicator.

Comparing the trend lines on the indicator & the stock index price those of the AD were broken before those of the chart. This is because volume always precedes stock index price.

Trading Signals

Exit

Exit signals are generated when the trend line on the Accumulation/Distribution is broken. A stock indices trendline break on the indicator warns of a possible reversal.

Entry

Once the trend line on the AD is broken it warns of a possible reversal in direction of the market.

However if we want to take a trade in the opposite direction it's always best to wait for a confirmation signal.

A confirmation signal is considered complete once both the indicator & the stock index price breaks both their stock indices trend lines.

Entry Signal Generated by Stock Indices Trend Reversal