Info 1: Accumulation/distribution index definition
Info 2: how A/D index works
Info 3: Money flow vs volume
Info 4: example for future Accumulation/distribution index
Opening information:
Accumulation/distribution index occupied two matter accumulation and distribution. Accumulation means collection of something, distribution means issue. Accumulation distribution means
So now let’s have a look what is a accumulation distribution index, how accumulation distribution index works, and what is the difference between the money flow and volume, finally one brief example about the future Accumulation/distribution index.
Info 1: Accumulation/distribution index definition
Mr.Daniel is the stock trader, who make return by speculate the short term fluctuation for almost with a experience of 16 years.
However he trade the any kind of public securities based on the one tool, that’s completely rely on find about how certain amount trend is strong to move up.
If the trend is not strong enough for certain amount of period, he mostly place the trade with order of short position. In fact he won’t place the trade until he got the right pitch or signal to enter the trade at Securities Market.
Here the tool which is used by Mr.daniel for identify the strength of the one stock or security trend for certain amount of period is what name as an accumulation and distribution index.
Because whenever this equipment of tool which is used by the any one kind of public Investors to trade the Securities which they are called as accumulation and distribution index or (A/D) index.
If the stock Investor won’t use this tool for any reason indeed of different kind of technical tool for trade analysis which are not came in A/D index.
This same concept would be applies to all the public Investors, so let’s dive into know how this A/D index works involved and calculate in the public market.
Info 2: how A/D index works
The A/D index doesn’t represent any of the specific things or object, instead it’s one types of technical indicator which is used for trade the stock and other securities.
However this technical Indicator would be made of function to calculate the trend strength. So to arrive and find the trend value strength, the sum takes place with three component.
One is previous close price of the trading stock, next previous low price for calculating period and then previous high price for calculating period.
Using these three components, first indicator subtract the close and low price (C-L) of the certain security to know how much certain stock is grown from the low price point.
Next A/D index indicator subtract the high and close price (H-C) of the stock, to know how much certain security would fallen from the high price.
Then to find the over all calculating days or period for certain strength, A/D indicator subtract the (C-L) and (H-C) value. This shows how much certain stock would grown and fallen in specific period.
But to find peak growth for the calculation period, it’s subtract the high with low price (H-L). It’s demonstrate how much point it’s moved high from the low point.
So dividing the over all grown and fallen period (C-L) – (H-C) with over all high point from low point (H-L) shows how much certain stock or security would be strong or weak for certain amount of calculating period.
Moreover this formula takes place like this to find the strength of money flow (MF) for determine days.
MF = (C-L) – (H-C) / (H-L)
money flow (MF)
Closed price (C)
low price (L)
high price (H)
But answer of money flow is not A/D indicator final value, it takes the trade volume to sum the answer, but most of the investing website Confuse this, so let’s jump into know the difference in it.
Info 3: Money flow vs volume
Money flow is a one types of tech tool which is used by the traders, if the money flow is calculate for 7 days it’s not didn’t had any relation to the volume.
So multiplying the money flow with volume that’s could be trade over the past weeks would be shows volume of the money flow.
This calculation take like this
Money flow volume ( MFV) = MF × volume of the calculating period.
This money flow volume is what separated as Accumulation and distribution index, but this calculated final value wouldn’t be same for all days, it might got differ on future period.
Info 4: example for future Accumulation/distribution index
Say your a stock trader who trade the stock shares only for short term frame period. And your using the tool of 7 days A/D index.
Today your A/D index calculate for past 7 days but tomorrow your A/D
Index takes the calculation for past 6 days MFV alone and make the 7th day as today for tomorrow calculation for A/D index.
Here the formula takes place like this
A/D index = previous 6 days money flow volume + Current period money flow volume.
In more general terms the formula takes by
A/D index = previous A/D + Current period money flow volume