Accumulation/Distribution Line (ADL) – Technical Analysis Crypto Strategy

The Accumulation/Distribution line (ADL) is a technical analysis tool that allows traders to monitor volume and analyze the cumulative flow of money. The metric was developed by Marc Chaikin, with the Accumulation/Distribution line providing two main insights: Essentially, it tells you whether a stock or asset is being accumulated or distributed.

Key point:

Accumulation = degree of demand for an asset.
Distribution = amount of asset supplied.

By looking at the accumulation vs. distribution, traders can assess future price of an asset.

Understanding ADL

ADL consists of three equations:

Cash Flow Mulitplier

Cash Flow Volume

Accumulation/Distribution Line

Equation No.1: Cash Flow Multiplier

The money flow multiplier represents the buying and selling pressure of an asset.

If the money flow multiplier is positive, there is greater demand. Conversely, if the money flow indicator is negative, there is a greater supply of the cryptocurrency.

Equation No. 2: Cash Flow Volume

After we have calculated the money flow multiplier, we must find the value of the money flow volume, which is the product of the volume for the period and the money flow multiplier.

Equation No. 3: Accumulation Distribution Line (ADL)

Finally, you must create a cumulative total cash flow volume, in order to establish the values of the accumulation/distribution line (ADL).

Let’s look at a few examples to get along with this indicator

ADL in Practice

The Accumulation/Distribution line provides two main insights:

Market strength

Divergence

Market strength refers to the momentum of the assets accumulation or distribution. If accumulation rises, investors are buying. If distribution increases, investors are selling. Effectively, the ADL gives you hints about the next price movement, particularly when the ADL runs inversely to the price. We call this inverse relationship divergence, and happens when price moves in the opposite direction as price.

Market analysis


In this case, Bitcoin’s price is starting to pullback after a recovery. When taking the ADL into consideration, two conclusions can be drawn:

Accumulation is growing (increased demand)

Bearish Divergence (prices moving downward)

Looking at a more recent timestamp we can test the ADL indicator on Bitcoin’s price. Like in the last example, we can make two observations:

Accumulation is growing (increased demand)

Bearish Divergence (prices moving downward)

Final thoughts 

All in all the accumulation/distribution line is a good tool to assess the volume strength behind price movements. With this tool, we can also establish whether the buying pressure is greater than the selling pressure or vice versa and predict possible changes in the prices of a cryptocurrency.Additionally, we can detect price-volume divergences, to confirm possible trends.

ADL is not a stand-alone indicator and like the other indicators, it is not always accurate, so it is recommended to use this indicator in conjunction with others, as well as to take into account factors external to the market. 


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