What ADL Really Measures

The Accumulation Distribution Line (ADL) is a volume-based technical indicator that measures the flow of money into or out of an asset by analyzing the relationship between price and volume. It specifically tracks how volume is distributed across price movements, helping traders identify potential accumulation (buying pressure) or distribution (selling pressure) phases.

At its core, ADL focuses on the closing price relative to the high and low of a given period. When the close is closer to the high, it suggests buying pressure, and volume is considered confirmatory. Conversely, when the close is near the low, it indicates selling pressure. The indicator aggregates this data cumulatively over time, creating a line that moves higher with accumulation and lower with distribution.

Unlike simple volume indicators, ADL does not merely count shares or contracts traded. Instead, it assigns a weighted value to volume based on where the price closed within the day's range. This weighting mechanism makes ADL sensitive to the quality of volume, not just quantity.

Traders use ADL to confirm trends or spot divergences. For example, if price is making new highs but ADL is declining, it may suggest that buying volume is weakening, signaling a possible reversal. Similarly, rising ADL during a price consolidation phase may indicate underlying accumulation before a breakout.