Investing & Trading

Accumulation Distribution Buying Pressure Study

By Samantha Baltodano


TL;DR:

The Accumulation/Distribution Buying Pressure study assesses the strength of current trends and signals possible trend reversals. The value is found by calculating the algebraic sum of all previous Accumulation/Distribution values. Trend changes are signaled during divergences between security price and the Accumulation/Distribution Buying Pressure value.


What Is Accumulation/Distribution Buying Pressure Study?

The Accumulation/Distribution Buying Pressure study is used to assess the strength of a trend. It does so by finding divergences between the price plot of a security and the indicator itself. 


It is calculated using two modes: Accumulation and Distribution:


  • The indicator is in Accumulation mode when the Close priсe of the current bar is greater than that of the previous bar. Accumulation is calculated as the difference between the current Close and lowest of the two values: current Low and previous Close.


  • The indicator is in Distribution mode when the Close priсe of the current bar is lower than that of the previous bar. Distribution is calculated as the difference between the current Close and greatest of the two values: current High and previous Close.


The final Accumulation/Distribution Buying Pressure value is equal to the algebraic sum (subtract negative values for distribution, add positive values for accumulation) of all previous Accumulation and Distribution values. Bars whose Close price is equal to that of the previous bar add zero to the final result.


The trend strength can be evaluated using the following method:


  • If the market makes new highs while the indicator decreases, it is a signal of weakening uptrend
  • If the market is making new lows while the indicator is rising, this suggests a weakening downtrend.

Summary

  • The Accumulation/Distribution Buying Pressure study is used to gauge the strength of the current trend for a security. A divergence between the price of a security and the value of the indicator point to possible trend reversals.
  • The Accumulation/Distribution Buying Pressure value is found by taking the algebraic sum of all prior Accumulation and Distribution values. Note that you add zero if a bars Close price is equal to that of the previous bar.
  • The reversal of an uptrend is signaled when the market makes new highs while the indicator decreases. The reversal of a downtrend is signaled when the market is making new lows while the indicator is rising.

Accumulation/Distribution Buying Pressure is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.


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