Accumulation/Distribution Concepts

Accumulation generally refers to a period where buying activity is building up, often discussed in the context of a range-bound market (covered in the Market Guides module) potentially preceding an upward breakout. Distribution generally refers to a period where selling activity is building up, potentially preceding a downward breakout. These are broad concepts that both OBV and the A/D Line, covered next, attempt to help identify through different calculation approaches.

Developed by Marc Chaikin, the A/D Line takes a different calculation approach from OBV. Rather than looking only at whether the close was higher or lower than the previous close, the A/D Line focuses on where the close falls within that period's own high-low range, combined with volume. A close near the high of the period's range contributes positively to the A/D Line, while a close near the low contributes negatively, with volume determining the magnitude of that contribution.

Because they're calculated differently, the A/D Line and OBV can sometimes move in different directions, even using the same underlying price and volume data. For example, an instrument could gap down and close notably lower than the previous close (causing OBV to fall, since OBV only compares to the previous close), while still closing near the top of that day's own range (causing the A/D Line to rise, since it focuses on range position rather than the prior close).