Name (ADL)
Marc Chaikin's Name (ADL) is not to be confused with Larry Williams's Accumulation/Distribution (WAD).
What is the Name (ADL)?
The Name (ADL) is a leading market strength indicator that was developed by Marc Chaikin to measure the buying and selling pressure of a security or the flow of money into and out of a security. Name (ADL) is an enhancement over On Balance Volume (OBV) as it takes price and volume into account. It also takes the relationship between the opening price and the closing price, and the price range into account rather than just the close price. For ADL, volume is considered bullish when the close price is higher than the open price and bearish when the price close is lower than the open price. However, the amount of volume assigned to the indicator is dependent on the distance between the open and close prices, and distance between the high and low prices, or the price range.
How is ADL calculated?
Name (ADL) is calculated in three steps. First, the money flow multiplier is calculated by dividing the current closing price by the previous closing price:
Money Flow Multiplier = Close Price / Previous Close Price
Next, the money flow volume is calculated by multiplying the money flow multiplier by volume:
Money Flow Volume = Money Flow Multiplier x Volume
Finally, the cumulative ADL is calculated by adding the money flow volume to the previous ADL:
ADL = Previous ADL + Money Flow Volume
How is ADL used?
It is important note that the ADL indicator should not be used on its own, but in conjunction with other indicators, such as momentum oscillators, or with chart patterns.
As with the OBV indicator, the direction of the ADL line indicates buying or selling strength with a rising ADL indicating increased demand for the underlying security, while a decline in ADL indicating a decline in the demand for the underlying security. When ADL increases the price of the underlying security is expected to rally and when the ADL decreases the price is expected to drop. However, when this price continues to rally while ADL declines or continues to fall when ADL increases divergence between ADL and the price occurs. This is the key signal that ADL provides an early warning that a price reversal is probable.
A momentum oscillator or a chart pattern can be used to better time an entry into a trade.