There are three steps to calculate ADL. First, calculate the Money Flow Multiplier which tells us the relationship of the current close to the high-low range. The Money Flow Multiplier fluctuates between +1 and -1. It’s positive when the close is in the upper half of the high-low range and negative when in the lower half. Second, multiply this by the volume which gives us the Money Flow Volume. Third, calculate a running total for the Money Flow Volume. Here are the 3 steps of the calculation:

*1. Money Flow Multiplier = [(Close - Low) - (High - Close)] /(High - Low)*

*2. Money Flow Volume = Money Flow Multiplier x Volume for the Period*

*3. ADL = Previous ADL + Current Period's Money Flow Volume*

We can use ADL to confirm the price trend or look for bullish or bearish divergences. The chart below shows that both the price chart and ADL is moving down. This reinforces the current selling pressure. The indicator window also shows the 20-day SMA for ADL. ADL is currently below its 20-day SMA which is also bearish.