Understanding the Accumulation Distribution Line (ADL)

The Accumulation Distribution Line (ADL) is a volume-based technical indicator designed to measure the flow of money into or out of an asset. It combines price action with trading volume to estimate whether an asset is being accumulated (bought) or distributed (sold) by institutional players.

At its core, ADL uses the relationship between the closing price and the day's trading range to determine the volume-weighted flow. When the close is near the high, it suggests buying pressure, and volume is considered confirmatory. Conversely, a close near the low implies selling pressure. This concept is called the "Close Location Value" (CLV), which ranges from -1 to +1.

The indicator cumulatively adds or subtracts volume based on the CLV. A rising ADL indicates that volume is flowing into the asset, suggesting accumulation. A declining ADL shows volume leaving the asset, suggesting distribution. Divergences between ADL and price can signal potential reversals.