Accumulation/Distribution Index (ADI)
A cumulative total volume analysis indicator
Marc Chaikin created the ADI as a cumulative total volume technical analysis indicator. The ADI adds or subtracts each day’s volume in proportion to where the close is between the day’s high and low.
The first step is to form a close location value,
CLV = [ (close – low) – (high – close) / high – low ]
This ranges from -1 when the close is the low of the day, to +1 when it’s the high. For instance if the close is 3/4 the way up the range then CLV is +0.5. The accumulation/distribution index adds up volume multiplied by the CLV factor, ie.
accdist = accdistprev + volume * CLV
The starting point for the acc/dist total, like the zero point, is arbitrary. Only the shape of the resulting indicator is used here, not the actual level of the total. The name accumulation/ distribution comes from the idea that during accumulation the purchasers are in control and the price will go up through the day, or will make a recovery if sold down. In either case, the price closes near the day’s high than low. During distribution, the opposite happens.
- The ADI is similar to On Balance Volume (OBV), but ADI is based on the close within the day’s range, while the OBV uses the close-to-close up or down
- We form a Chaikin oscillator by subtracting a 10-day exponential moving average (EMA) from a 3-day EMA of the ADI
- Since the Chaikin oscillator is an indicator of an indicator, it can give many sell or buy signals, depending on the context and depending on the other indicators.