Accumulation Distribution is a momentum indicator - it uses a formula to determine if investors are buying or selling a particular stock. By identifying variations between the price of a stock and the flow of volume, this indicator will show if investors are buying or selling.
It is calculated using the following formula:
Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) x Period's volume
This method is used in conjunction with other market indicators and analysis to determine when is the right time to buy or sell a security. For example, if during a downtrend there are a lot of high volume days occurring, it could signal that the demand for the stock is starting to increase.
In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and make his or her investment decisions using other technical indicators.