Accumulation Distribution is a technical analysis indicator that uses volume to confirm price trends or warn of weak movements that could result in a price reversal.

• Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term "accumulation day"
• Distribution: Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term "distribution day"

To calculate the accumulation distribution technical analysis indicator, when a day is an accumulation day, the day's volume is added to the previous day's Accumulation Distribution Line; when a day is a distribution day, the day's volume is subtracted from the previous day's Accumulation Distribution Line. To illustrate, yesterday's accumulation distribution line was one million. Today, the price closed higher than the open so today is considered an accumulation day. Today's volume was 1000 shares, so 1000 is added to the previous day's accumulation distribution line for a current total of 1,001,000.

The best use of the accumulation distribution technical analysis indicator is determining divergences. A bearish divergence, for example, is when price is rising, but the technical analysis indicator is suggesting that prices should be going down. At these moments exiting a stock position would be well advised. A bullish divergence occurs when, for example, the accumulation distribution line begins to increase, but prices are still falling. A trader would often look for buy signals when these bullish divergences occur. The following link contains charts and further explanations and detailed examples of the Accumulation Distribution indicator.

For more information on volume analysis click Volume.