In my last post, I talked about the concept of accumulation and distribution and how traders can use it to determine the price movement of an asset in the market.
Here in this post, I am going to be taking that further and we are going to be covering the Accumulation/Distribution indicator which can help us better understand how to point out a coin in accumulation or distribution.
I'll also be showing you how to set up this indicator on TradingView and how to read it on the charts
Better known as ADL for short, it was developed by Mark Chaikin as one of the tool to be used in the selection of stocks, overtime this indicator got adopted in other markets, the most recent being the crypto market.
The ADL indicator uses the relationship between the asset's price and volume of the coin being traded to determine the future price movement of the coin.
To determine the direction of price movement using ADL for a certain period, there is a formula at the basis of everything.
The formula is three staged and it goes as thus
According to this article and some other sources that are not cited
- Firstly, we will calculate the money flow multiplier for that period/timeframe and in order to do that we will use the following formula
Money flow multiplier = [(close - low) - (high - close)] (high- low)
If the result of the equation above return positive then we can say we are leaning towards accumulation, but if the result is negative we can say that we are leaning towards distribution for that timeframe.
- In the second step we are going to get the current Money flow volume which can be gotten with the following equation
Money Flow Volume = Money Flow Multiplier x volume for the period
- In order to get the current accumulation/distribution value we are going to add previous accumulation distribution value from the last timeframe to the money flow volume as shown in this chart.
The current A/D value = previous A/D value + current value for Money Flow Volume
Calculating the A/D value can be a daunting task due to the fact that we would need to calculate for different timeframes before it can be used to make buy/sell decisions.
An easier approach will be to read the various values off the chart for different timeframes.
The tool I like to use for this purpose is TradingView.
In order to get the accumulation and distribution values on your TradingView chart for any coin, firstly log in and navigate to the asset detail page for the coin you are looking to analyze.
For this post I am looking to analyze the HBARBTC coin using the ADL
Here is the link to the coin detail page for HBARBTC
On the page, click on Full-featured chart around the top right which will take you to the page where you can view the full price chart for the coin
In order to add the ADL indicator, in the top menu look for a column that says Indicators and click on it.
On the modal that will be displayed, click on Built-Ins and then click on Accumulation and Distribution
On your chart you should see a new line below the price movement candles showing the accumulation and distribution values for different periods.
- If the ADL on a chart is moving upward it signals an accumulation move and if the ADL on a chart is moving down ward, it signals a distribution move.
- An ADL that forms higher lows and higher highs signals an upward trend
- Lower lows and lower highs signals a downward trend
- If the price of the coin shows a downward movement and the ADL is rising it is almost always a signal to buy the coin.
The ADL when used with other major indicators is a very effective tool for determining the price movement of a coin.