InvestorQ : How does accumulation distribution work in practice?
shrinidhi Rajan made post

How does accumulation distribution work in practice?

Answer
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Riya Dwivedi answered.
1 year ago


How exactly does the AD indicator work in practice? What needs to be understood is that the actual value of the Accumulation Distribution or AD is unimportant. You must focus more on the direction of the AD vis-à-vis the price movement of the stock or the index. Here are some key analytical takeaways that you can carry from the AD analysis.

· When both the price and Accumulation Distribution AD are making higher peaks and higher troughs, it can be interpreted that the uptrend is likely to continue into the future too.

· When both price and Accumulation Distribution are making lower peaks and lower troughs, the down trend is likely to continue. This is very important when you need to take a view on continuing your short position or terminating your long position with a stop loss.

· If in the middle of a trading range, the Accumulation Distribution or AD is rising, then accumulation may be taking place and is a clear warning or an advance signal of an upward break out. You can position your long trades accordingly.

· If in the midst of a trading range, the Accumulation Distribution of AD is falling, then distribution may be taking place and is a warning of a downward break out. It is time to be cautious on the stock or the market at these indicators.