Accumulation/Distribution Oil Technical Analysis & Accumulation/Distribution Trading Signals

Developed by Marc Chaikin

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

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 stock.

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

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

Interpretation

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

UpCrude Trading Trend

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

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

DownOil Trading Trend

If the crude trading price on a oil chart is falling then the AD should also be falling. This shows that the crude trading price move is being supported by volumes & the move downwards has strength behind it.

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

Crude Oil Technical Analysis & How to Generate Trading Signals

Shown Below is example of a oil chart and the technical analysis explanation

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

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

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

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

As long as the crude oil price & the indicator are moving in the same direction then the crude oil price move has enough momentum to continue moving in that direction as shown above

Crude Oil Trend-line Break

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

Looking at the chart below we have added vertical lines to represent the points where the oil trend lines were broken, both on the crude oil price chart and the indicator.

Comparing the oil trend lines on the indicator & the crude trading price those of the AD were broken before those of the chart. This is because volume always precedes crude trading price.

Crude Trading Signals

Exit

Exit trading signals are generated when the oil trend line on the Accumulation/Distribution is broken. A oil trend-line break on the indicator warns of a possible reversal.

Entry

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

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

A confirmation signal is considered complete once both the indicator & the crude trading price breaks both their oil trend lines.

Entry Signal Generated by Oil Trend Reversal