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Miha Kralj
a7b7207801
- Updated mathematical foundations and performance profiles where necessary to maintain clarity and coherence.
68 lines
2.6 KiB
Markdown
68 lines
2.6 KiB
Markdown
# ADL: Accumulation/Distribution Line
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> "Volume precedes price." — Old Wall Street Adage
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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?"
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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."
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## Historical Context
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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.
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## Architecture & Physics
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ADL is a cumulative indicator, meaning it has infinite memory. Today's value depends on the sum of all yesterdays.
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The core mechanic is the **Money Flow Multiplier (MFM)**, also known as the Close Location Value (CLV). This value ranges from -1 to +1:
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- **+1**: Close = High (Maximum Accumulation)
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- **-1**: Close = Low (Maximum Distribution)
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- **0**: Close is exactly in the middle
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This multiplier is then applied to the volume to determine the "Money Flow Volume" for the period.
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## Mathematical Foundation
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### 1. Money Flow Multiplier (MFM)
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$$
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MFM = \frac{(Close - Low) - (High - Close)}{High - Low}
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$$
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### 2. Money Flow Volume (MFV)
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$$
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MFV = MFM \times Volume
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$$
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### 3. Accumulation/Distribution Line (ADL)
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$$
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ADL_t = ADL_{t-1} + MFV_t
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$$
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## Performance Profile
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ADL is extremely lightweight.
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| Metric | Complexity | Notes |
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| :--- | :--- | :--- |
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| **Throughput** | ~2ns / bar | Simple arithmetic + accumulation |
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| **Allocations** | 0 bytes | Hot path is allocation-free |
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| **Complexity** | O(1) | Constant time per update |
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| **Precision** | `double` | Essential for cumulative sums |
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## Validation
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Validation is performed against **TA-Lib**, **Skender.Stock.Indicators**, and **Tulip Indicators**.
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- **Accuracy**: Matches external libraries to 9 decimal places.
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- **Edge Cases**: Handles `High == Low` (division by zero protection) by setting MFM to 0.
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### Common Pitfalls
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- **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.
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- **Scale**: The absolute value of ADL is meaningless; it depends on the start date of the data. Only the *trend* and *divergence* matter.
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- **Volume Spikes**: A single bad data point with erroneous volume can permanently skew the ADL. Sanitize your data.
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