Accumulation/Distribution indicator is a leading indicator which uses the relationship of stock’s price and volume within a specific period of time. When the price of a stock is bought or accumulated backed by big volume we assume that future price may go up. Similarly, when a stock is sold or distributed in great volume at a particular time, we assume the price to fall. Also, the accumulation distribution indicator detects price volume divergence. When the price of a stock goes up or down and volume decreases or does not increase, this shows a weakness in present trend and a trader can be prepared beforehand for an imminent reversal. Zerodha Kite charts plot this indicator for traders.
How to insert Accumulation/Distribution indicator in Zerodha Kite?
- Go to MarketWatch.
- Choose the stock you are going to trade.
- Right click on the stock and select chart from graphic icons.
- Chart window of the stock opens.
- Go to studies. Select studies.
- Go to Accumulation/Distribution and click on it.
- A small window opens with default parameters of the indicator.
- Once the parameters are selected the Done command is chosen, the parameters window goes off the screen and the indicator is plotted on stocks price.
- Enter the trade if the price movement is backed by unusual rise in volume.
- Exit trade if price volume divergence occurs.
Accumulation/Distribution indicator in intraday –
- The indicator works well in all time frames.
- The picture above shows State Bank of India (SBIN) stock price movement with respect to volume.
- The chart shows 1 min. timeframe.
- A short position is created when the price goes down accompanied by good volume.
- The accumulation distribution line (ADL) shows the price trend. Understanding price trend from ADL is important before creating a position.
- The short position is closed when the stock price goes up with strong volume or divergence occurs.
- A fresh buy position can also be created if the price goes up with strong volume..
The accumulation distribution indicator works well in bullish or bearish divergences like MACD indicator. Traders can use this in technical trading by creating Long or Short positions at this divergences and exit when the reverse signal occurs.
Partha, an engineer by education, is theoratically actively following the stock and commodity markets since 1990. He is an active trader since 2003. He has received formal education in future and options and quantum analysis. He is presently working on research oriented projects using Python and data analytics.