Miha Kralj
a7b7207801
- Updated mathematical foundations and performance profiles where necessary to maintain clarity and coherence.
2.6 KiB
ADL: Accumulation/Distribution Line
"Volume precedes price." — Old Wall Street Adage
The Accumulation/Distribution Line (ADL) is the bedrock of volume analysis. It attempts to answer a single, vital question: "Are the big players buying or selling?"
Unlike On-Balance Volume (OBV), which treats every up-day as 100% buying, ADL is nuanced. It looks at where the price closed within the day's range. A close near the high on massive volume screams "Accumulation." A close near the low on massive volume screams "Distribution."
Historical Context
Developed by Marc Chaikin, the ADL was originally designed to spot divergences. Chaikin noticed that if a stock made a new high but the ADL failed to make a new high, a crash was imminent. He essentially quantified the "smart money" flow.
Architecture & Physics
ADL is a cumulative indicator, meaning it has infinite memory. Today's value depends on the sum of all yesterdays.
The core mechanic is the Money Flow Multiplier (MFM), also known as the Close Location Value (CLV). This value ranges from -1 to +1:
- +1: Close = High (Maximum Accumulation)
- -1: Close = Low (Maximum Distribution)
- 0: Close is exactly in the middle
This multiplier is then applied to the volume to determine the "Money Flow Volume" for the period.
Mathematical Foundation
1. Money Flow Multiplier (MFM)
MFM = \frac{(Close - Low) - (High - Close)}{High - Low}
2. Money Flow Volume (MFV)
MFV = MFM \times Volume
3. Accumulation/Distribution Line (ADL)
ADL_t = ADL_{t-1} + MFV_t
Performance Profile
ADL is extremely lightweight.
| Metric | Complexity | Notes |
|---|---|---|
| Throughput | ~2ns / bar | Simple arithmetic + accumulation |
| Allocations | 0 bytes | Hot path is allocation-free |
| Complexity | O(1) | Constant time per update |
| Precision | double |
Essential for cumulative sums |
Validation
Validation is performed against TA-Lib, Skender.Stock.Indicators, and Tulip Indicators.
- Accuracy: Matches external libraries to 9 decimal places.
- Edge Cases: Handles
High == Low(division by zero protection) by setting MFM to 0.
Common Pitfalls
- Gaps: ADL ignores gaps. If a stock gaps up but closes near its low, ADL will register distribution, even if the price is higher than yesterday.
- Scale: The absolute value of ADL is meaningless; it depends on the start date of the data. Only the trend and divergence matter.
- Volume Spikes: A single bad data point with erroneous volume can permanently skew the ADL. Sanitize your data.