Disconnect with Prices

The Accumulation Distribution Line is an indicator based on a derivative of price and volume. This makes it at least two steps removed from the actual price of the underlying security. Moreover, the Money Flow Multiplier does not take into account price changes from period to period. As such, it cannot be expected to always affirm price action or successfully predict price reversals with divergences. Sometimes there is a disconnect between prices and the indicator. Sometimes the Accumulation Distribution Line simply doesn’t work. This is why it is vitally important to use the Accumulation Distribution Line, and all indicators for that matter, in conjunction with price/trend analysis and/or other indicators.

Trading Academy - Disconnect with Prices 1

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