08 Chaikin Accumulation Distribution

In the On Volume Balance indicator, volume was added or subtracted sequentially depending if price when up or down. In the Chaikin accumulation, volume is added or subtracted depending on how the close price compares to the high and low price.

If the close price is nearer to the high price than to the low price, then the money flow is added proportionally to how near.

If the close price is nearer to the low price than to the high price, then the money flow is subtracted proportionally to how near.

The money flow at any given time is then added to the prior money flow.

The index estimates money flow by better gauging the dominant team.

The index is useful to indicate price reversals when divergences occurs: if the indicator is moving up and the security’s price is going down, prices will probably reverse and start going up.

Figure 8.13: Chaikin Accumulation Distribution

Chaikin can also indicate reverals, when it show divergency with price:

Figure 8.14: Chaikin Accumulation Distribution