The Accumulation/Distribution Line, developed by Marc Chaikin, is a volume-based momentum indicator that measures the cumulative flow of money into and out of an asset. Unlike OBV which treats the entire day's volume as bullish or bearish based purely on the close, A/D Line weights volume by where the close falls within the day's range — making it a more nuanced measure of institutional activity.
Marc Chaikin designed the A/D Line to capture the location of the close within the daily range — his insight being that a stock closing near its high on heavy volume is more bullish than one closing in the middle of its range on the same volume.
Multiplier = ((Close – Low) – (High – Close)) / (High – Low). This produces a value between +1 and -1. If the close equals the high: Multiplier = +1 (maximum bullish). If the close equals the low: Multiplier = -1 (maximum bearish). If the close is exactly at the midpoint: Multiplier = 0 (neutral, no volume added or subtracted).
Money Flow Volume = Multiplier × Period Volume. The A/D Line is a running cumulative total: A/D(today) = A/D(yesterday) + Money Flow Volume(today). The result captures not just whether more volume occurred on up days (like OBV) but whether buyers or sellers were more aggressive within each individual period.
| Close Location | Multiplier | Effect on A/D | Interpretation |
|---|---|---|---|
| At the high | 1.0 | Full volume added | Maximum bullish pressure |
| Upper quarter | ~0.5 | Half volume added | Moderate buying pressure |
| Exact midpoint | 0.0 | No change | Indecision / balance |
| Lower quarter | ~-0.5 | Half volume subtracted | Moderate selling pressure |
| At the low | −1.0 | Full volume subtracted | Maximum bearish pressure |
Both A/D Line and OBV are cumulative volume indicators but they approach the problem differently. Understanding when each is more useful makes both more powerful.
The A/D Line is superior when intraday price behaviour matters. A stock that opens high, rallies, but closes near its low — even if the close is technically higher than yesterday — will see a negative A/D contribution despite OBV registering positive volume. This captures distribution that OBV misses.
OBV is superior for capturing pure daily direction of institutional flows. If institutions are steadily buying across the day and closing is consistently up, OBV captures this cleanly. OBV divergence is also generally considered more reliable than A/D divergence for major trend reversals.
Use both together. OBV divergence at a major high combined with A/D Line divergence at the same point doubles the confirmation. When both indicators are diverging from price simultaneously, the probability of a significant reversal is materially higher than when only one diverges.
Price makes new highs. A/D Line fails to confirm — it makes lower highs or begins declining. This reveals that even as price pushes higher, closes are happening in the lower portions of daily ranges. Buyers are not aggressive near the highs. Smart money is distributing into the rally. This is one of the clearest signs of institutional selling before a top.
Price makes new lows or continues falling. A/D Line stabilises or turns up. Despite falling prices, closes are increasingly occurring in the upper portions of daily ranges. Institutional buyers are stepping in on weakness, absorbing selling pressure. This frequently precedes a significant reversal or sustained rally.
When price moves sideways in a range but the A/D Line is rising, accumulation is happening quietly. When it is falling during consolidation, distribution is occurring. This advance warning before a price move is one of the most actionable signals in volume analysis.
Before entering a breakout trade, check the A/D Line. If price is about to break above resistance and the A/D Line is already above its own prior high — this confirms institutional buying is supporting the breakout. If the A/D Line is lagging or declining as price approaches resistance, the breakout probability is lower and the risk of failure higher.
In a mature uptrend, watch for the A/D Line to begin deteriorating — making lower highs while price still appears strong. This sequential divergence, where the A/D Line peaks and turns down weeks before price peaks, is one of the earliest signals of a major top forming.
Marc Chaikin also developed Chaikin Money Flow (CMF), which normalises the A/D concept over a rolling period (typically 21 days) to create a bounded oscillator between -1 and +1. CMF above zero indicates net accumulation. CMF below zero indicates net distribution. CMF crossing zero is a momentum signal. Many traders prefer CMF as it is easier to read than the unbounded cumulative A/D Line.