what does the accumulation distribution indicator a d tell you 
the a d line helps to show how supply and demand factors are influencing price a d can move in the same direction as price changes or in the opposite direction the multiplier in the calculation provides a gauge for how strong the buying or selling was during a particular period it does this by determining whether the price closed in the upper or lower portion of its range this is then multiplied by the volume therefore when a stock closes near the high of the period s range and has high volume it will result in a large a d jump alternatively if the price finishes near the high of the range but volume is low or if the volume is high but the price finishes more toward the middle of the range then the a d will not move up as much the same concepts apply when the price closes in the lower portion of the period s price range both volume and where the price closes within the period s range determine how much the a d will decline image by sabrina jiang investopedia 2021the a d line can help assess price trends and potentially spot forthcoming reversals if a security s price is in a downtrend while the a d line is in an uptrend then the indicator shows there may be buying pressure and the security s price may reverse to the upside conversely if a security s price is in an uptrend while the a d line is in a downtrend then the indicator shows there may be selling pressure or higher distribution this warns that the price may be due for a decline in both cases the steepness of the a d line provides insight into the trend a strongly rising a d line confirms a strongly rising price similarly if the price is falling and the a d is also falling then there is still plenty of distribution and prices are likely to continue to decline 1the accumulation distribution indicator a d vs on balance volume obv both of these technical indicators use price and volume albeit somewhat differently on balance volume obv looks at whether the current closing price is higher or lower than the prior close if the close is higher then the period s volume is added if the close is lower then the period s volume is subtracted the a d indicator doesn t factor in the prior close and uses a multiplier based on where the price closed within the period s range therefore the indicators use different calculations and may provide different information limitations of using the accumulation distribution indicator a d the a d indicator does not factor in price changes from one period to the next and focuses only on where the price closes within the current period s range this creates some anomalies assume a stock gaps down 20 on huge volume the price oscillates throughout the day and finishes in the upper portion of its daily range but is still down 18 from the prior close such a move would actually cause the a d to rise even though the stock lost a significant amount of value it finished in the upper portion of its daily range therefore the indicator will increase likely dramatically due to the large volume traders need to monitor the price chart and mark any potential anomalies like these as they could affect how the indicator is interpreted also one of the main uses of the indicator is to monitor for divergences 1 divergences can last a long time and are poor timing signals when divergence appears between the indicator and price it doesn t mean a reversal is imminent it may take a long time for the price to reverse or it may not reverse at all the a d is just one tool that can be used to assess strength or weakness within a trend but it is not without its faults use the a d indicator in conjunction with other forms of analysis such as price action analysis chart patterns or fundamental analysis to get a more complete picture of what is moving the price of a stock 