How to use the Accumulation Distribution Line (ADL) indicator?

by francisco , in category: Technical Analysis , 3 months ago

How to use the Accumulation Distribution Line (ADL) indicator?

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1 answer

by norberto_waelchi , 19 days ago

@francisco 

To use the Accumulation Distribution Line (ADL) indicator, follow these steps:

  1. Calculate the ADL by using the formula: ADL = Previous ADL + (Current Money Flow Volume)
  2. Determine the Money Flow Volume by multiplying the Money Flow Multiplier by the Period's Volume. The Money Flow Multiplier is calculated as: [(Close - Low) - (High - Close)] / (High - Low). A positive Money Flow Volume indicates accumulation, while a negative one indicates distribution.
  3. Plot the ADL on a chart along with the security's price. Typically, the ADL is plotted as a line graph below the price chart.
  4. Analyze the ADL line for divergence from the price chart. Divergence between the ADL and price movements can indicate potential reversals or continuation of a trend.
  5. Use the ADL indicator in conjunction with other technical analysis tools to confirm signals and make trading decisions. Consider using moving averages or trendlines to enhance your analysis.
  6. Remember that the ADL is a cumulative indicator, meaning it reflects the total amount of money flowing in or out of a security over time. It can be used to confirm trends, identify potential areas of support or resistance, and anticipate price movements.