Accumulation/Distribution Commodities Technical Analysis and Accumulation/Distribution Trading Signals

Developed by Marc Chaikin

This commodity indicator is used to assess the cumulative flow of money into and out of a commodity.

Originally used for stocks trading, when it comes to stocks trading "volume" is the amount of shares traded in a particular stock, this volume is a direct reflection of the money that is coming into and out of a commodities.

The basic principle behind AD is that volume(or money flow) is a leading indicator of the commodities trading price. (Volume precedes commodities trading price).

Tick volume is the measure of commodities trading price changes (ticks) received by a broker during a particular trading period/interval. The tick volume is incorporated by many commodities trading brokers in their charting software.

Interpretation

This volume indicator is used to determine if volume is increasing or decreasing as the commodities trading price on a commodity chart is rising or falling.

UpCommodities Trading Trend

If the commodities trading price on a commodity chart is rising then the Accumulation/Distribution should also be rising. This shows that the commodities price move is being supported by volumes & the move upwards has strength & is sustainable.

If on the other hand commodities trading price is moving up and the volumes are not, the strength behind the move is reducing; this creates divergence between commodities trading price & indicator & warns of a possible move in the opposite direction.

DownCommodity Trading Trend

If the commodities trading price on a commodity chart is falling then the AD should also be falling. This shows that the commodities price move is being supported by volumes and the move downward has strength behind it.

If on the other hand commodities trading price is moving down and the volumes are not, the strength behind the move is reducing; this creates divergence between commodities price & AD and warns of a possible move in the opposite direction.

Commodities Technical Analysis & How to Generate Trading Signals

Below is example of a commodity chart and the technical analysis explanation

From the chart above we can separate the chart into 3 parts, part A, B & C.

A - Upwards commodity trendline on chart as well as on the Accumulation/Distribution

B - Downwards commodity trendline on chart as well as on the Accumulation/Distribution

C - Upwards commodity trendline on chart as well as on the Accumulation/Distribution

As long as the commodities price and the indicator are moving in the same direction then the commodities price move has enough momentum to continue heading in that direction as displayed above

Commodities Trend-Line Break

From the above chart we can see that once the commodity trend line on the AD was broken then the commodities trading price commodity trend line was also broken.

Looking at the chart below we have added vertical lines to represent the points where the commodity trend lines were broken, both on the commodities trading price chart & the indicator.

Comparing the commodity trend lines on the indicator and the commodities trading price those of the AD were broken before those of the chart. This is because volume always precedes commodities trading price.

Trading Signals

Exit

Exit signals are generated when the commodity trend line on the Accumulation/Distribution is broken. A commodity trendline break on the technical indicator warns of a possible reversal.

Entry

Once the commodity trend line on the AD is broken it warns of a possible reversal in direction of the market.

However if we want to take a trade in the opposite direction it's always best to wait for a confirmation signal.

A confirmation signal is considered complete once both the indicator and the commodities trading price breaks both their commodity trend lines.

Entry Signal Generated by Commodities Trend Reversal