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

Developed by Marc Chaikin

This commodity technical indicator is used to assess the cumulative flow of money into and out of commodity.

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 commodity price. (Volume precedes commodity price).

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

Interpretation

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

UpCommodity Trading Trend

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

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

DownCommodities Trading Trend

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

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

Commodity Trading Technical Analysis & How to Generate Signals

Below is example of a commodity chart and the technical analysis explanation

From chart above we can separate the chart into 3 parts, part A, B and C.

A - Upward commodity trendline on chart as well as on the Accumulation/Distribution

B - Downward commodity trendline on chart as well as on the Accumulation/Distribution

C - Upward commodity trendline on chart as well as on the Accumulation/Distribution

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

Commodity Trendline Break

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

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

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

Trading Signals

Exit

Exit signals are generated when the trend line on the Accumulation/Distribution is broken. A commodity trendline break on the technical indicator warns of a possible reversal.

Entry

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

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

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

Entry Signal Generated by Commodity Trading Trend Reversal