The Accumulation Distribution Line (ADL), developed by Marc Chaikin, is a cumulative volume-based indicator that assesses whether a security is being accumulated (bought by institutions) or distributed (sold by institutions) by combining price action and volume into a running total. For each period, the Money Flow Multiplier is calculated based on where the close falls within the period's high-low range — if the close is near the high, the multiplier is positive (accumulation); if near the low, it is negative (distribution). This multiplier is applied to the period's volume to generate the Money Flow Volume, which is then added to a running cumulative total to form the ADL. A rising ADL confirms an uptrend — volume is flowing into the security on days when it closes near its high. A falling ADL signals distribution even if price is rising — a bearish divergence that often precedes price declines. In Indian equity markets, ADL divergences are particularly valuable for detecting institutional distribution in momentum stocks before the price begins to roll over — a classic warning sign seen in many Indian small and mid-cap stocks before significant corrections.
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