Description
Accumulation/Disribution is a strategy created by Domenico D'Errico in attempt to identify and utilize market phases stipulated by Dow theory. The strategy recognizes accumulation and distribution market phases based on range or average true range compression and adds simulated buy and sell orders accordingly.
The strategy recognizes the accumulation market phase if the price is in downtrend, but the price move is slowing down while gaining short-term momentum. Conversely, the distribution phase is recognized if the price is in uptrend while losing short-term momentum and the overall price move shows signs of slowing down. The slowing down of the price move, or range compression, is evaluated by the Accumulation/Distribution study. Two types of range measurement can be used with this study: high-low range or average true range.
A simulated buy to open order is added if all of the following conditions are fulfilled:
- Range compression is detected.
- A higher 12-week low is registered.
- The close price breaks above a recent highest level.
- Average volume has recently increased. Two past average values are compared: a recent average value and a value that is offset from it by the average length.
A simulated sell to close order is added when the close price falls below a recent low.
Input Parameters
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Parameter |
Description |
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Defines the period for which the high-low range or the average true range is calculated. |
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Defines the upper limit (exclusive) of the recent to past range ratio for the range compression to be recognized. |
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Defines the lower limit (exclusive) of the recent to past average volume ratio for the volume condition to be fulfilled. |
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Defines the length of the moving average calculated for volume. |
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Defines the offset from the current bar to find the recent value of the average volume. |
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Defines whether to use the high-low range or the average true range in the calculations. |
Further Reading
1. "Portfolio Strategy Based On Accumulation/Distribution" by Domenico D'Errico. Technical Analysis of Stocks & Commodities, August 2018.
Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.