Accumulation/distribution is an oscillator type of volume indicator.

Accumulation/Distribution indicator was created by Marc Chaikin with the main objective of helping traders to know whether the market of a given security is being bought or sold.

According to Marc Chaikin, Accumulation means traders are buying while Distribution means traders are selling.

Since Accumulation/Distribution is a trading volume indicator, it is therefore used  to identify whether a stock/forex is being accumulated(bought) or is being distributed(sold)

According to Marc Chaikin, Accumulation/distribution works on the basis of divergence,that is A/D moving in opposite direction to the price in the market after which price reverse and start moving in the same direction as A/D

Marc Chaikin further derived the formula for getting the values of Accumulation/Distribution as follows;

A/D= Previous A/D + Current money flow volume

Since Accumulation/Distribution works on the basis of divergence,that is A/D moving in opposite direction to the price in the market.This is therefore to be said that when the A/D is moving downwards when the price in the market is rising,then a reversal of the price in the market will take place thus the price will also start moving downwards in the same direction as the A/D. On the other hand,when the A/D is moving upwards when the price in the market is falling ,then a reversal of the price in the market will take place thus the price will also start moving upwards in the same direction as A/D.

This is indicated as in the candle sticks chart below;

From the candle sticks chart above,point A represents the Accumulation/Distribution curve,point B represents the upward movement of the A/D while point C represents the downward movement of A/D. At point C,the price of the market was initially moving upwards while the A/D was moving downwards.This was able to signal trader to exit any buy position and open a sell position at that point since a downward reversal of the market was going to take place.Later on,the market reverse downwards and start moving in the same direction as the A/D. At point B,the price of the market was initially moving downwards while the A/D was moving upwards .This was able to signal the trader to exit any sell position and open a buy position at that point since an upward reversal of the market was going to take place.Later on,the market reverse upwards and start moving in the same direction as A/D.

Recommendation: If you are  day trader just use 1 min,5 min,15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want Accumulation/Distribution indicator to work well for you.

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