Accumulation/Distribution Line

The accumulation/distribution line improves on OBV by not giving the whole bar to the sign of the close. A bar that closes near its high adds most of its volume. A bar that closes near its low subtracts most of its volume, even if the close is slightly up on the day. The result is a running total. As with OBV, the level is arbitrary and the slope is the signal. The name sounds like a verdict on institutions. The formula is only close location times volume.

A rising line says closes have been finishing near the highs of their bars on the heavier volume. A divergence, price at a new high and the line failing, says the pushes are closing poorly or the heavy bars are closing low. That is a more specific claim than OBV makes. It still cannot see who traded, and a close near the high can be short covering as easily as accumulation.

A rising line during a pullback says the down bars are closing off their lows or are light. A line that breaks out before price is the bullish lead traders hope for. Wait for price to confirm the level. The indicator breaking its own range is not a fill price.

A flat or falling line against rising price is the bearish divergence. One wide bar that closes on its low can kink the line for a long time because the whole volume is subtracted. Check that bar before you abandon a trend.

Treating the name literally and announcing that smart money is accumulating. You measured where bars closed. Also using the line on a market with many unchanged or single-price prints, where the denominator is tiny and one tick swings the location value from -1 to +1.

Gaps are invisible except through the bar that follows. A stock can gap down and close at the high of a small range, adding volume, while the real damage was the gap. Pair the line with the price chart. Do not let it replace the chart.