Volume Indicator Accumulation Distribution Level Indicator, also known as the AD Line, is a market breadth indicator used in technical analysis to measure the difference between the number of advancing and declining stocks in a given market or index.
It provides traders with an indication of market sentiment and overall market health, as well as confirmation of trends and potential trend reversals.
Volume Indicator Accumulation Distribution Level Indicator Overview
The AD Line is calculated by subtracting the number of declining stocks from the number of advancing stocks and adding the result to a cumulative total of the previous day’s AD Line value.
The resulting line is plotted on a chart and can be used to identify trends and potential turning points in the market.
Traders also use the AD Line to confirm the strength of a trend and identify potential reversals.
Volume Indicator Accumulation Distribution Level Indicator Explanation
The AD Line is useful in assessing the overall health of the market. In an uptrend, the AD Line should generally trend higher as more stocks are advancing than declining.
Conversely, in a downtrend, the AD Line should generally trend lower as more stocks are declining than advancing.
If the AD Line is flat or declining during an uptrend, it could signal that the market is losing breadth, with only a few stocks carrying upward momentum.
A rising AD Line during an uptrend indicates that more stocks are advancing, providing confirmation that the trend is strong.
Conversely, a declining AD Line during an uptrend could signal a potential trend reversal, as more stocks are declining than advancing.
Volume Indicator Accumulation Distribution Level: Buy Condition
- Buy when the Advance/Decline Line is rising.
- Look for a divergence between the AD Line
- price movement, indicating a potential trend reversal
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Volume Indicator Accumulation Distribution Level: Sell Condition
- Sell if the Advance/Decline Line is falling
- Observe the AD Line for a divergence.
- Price changes that can be a sign of a trend reversal
