Section: 3 Market Structure
Sub Section: 3 Accumulation Distribution
The accumulation distribution formula is an improved on Balance Volume indicator. This indicator uses a relationship between volume and prices to estimate the strength of price movements. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move.
When the Accumulation/Distribution moves up, it shows that the security is being accumulated, as most of the volume is associated with upward price movement. When the indicator moves down, it shows that the security is being distributed, as most of the volume is associated with downward price movement.
Divergences between the Accumulation/Distribution and the security's price implies a change is imminent. When a divergence does occur, prices usually change to confirm the Accumulation/Distribution. For example, if the indicator is moving up and the security's price is going down, prices will probably reverse.