Intraday Intensity Technical Analysis
- Stock chart indicators are technical analysis tools used by analysts to evaluate a stock's future direction. These tools are created with formulas that generally use various combination of a stock's price and volume measurements. They can help traders determine if a stock's price is overbought, oversold, under accumulation, under distribution and other potentially useful information about it.
- Intraday intensity is a volume-based technical analysis indicator that measures a stock's accumulation and distribution. This indicator is sometimes referred to as the accumulation/distribution index, or A/D. Intraday intensity is usually presented as a squiggly line placed on stock charts below the price area. The line oscillates on a scale of zero to 100. When the line is moving higher, it represents accumulation, and when the price is moving lower, it represents distribution.
- The price of a stock moves based on supply and demand; however, it is primarily large institutional traders that have enough resources to actually significantly move the price of many stocks. The intraday intensity indicator attempts to measure what institutional traders are doing by measuring trading volume on up moves against volume occurring during downside moves. If volume is larger when a stock price moves up than it is when the price falls back, intraday intensity will indicate the stock has been under accumulation, which theoretically means the future price action of the stock should move higher.
- It is possible for the price of a stock to climb higher, yet be under institutional distribution at the same time. When this happens it means that institutions are selling shares even as others are buying the stock. Distribution which occurs when prices are climbing usually precludes an imminent price reversal lower.
One of the more useful ways to use the intraday intensity indicator then is to look for a divergence between price and the indicator. If the price of the stock is rising while intraday intensity is falling, a divergence has taken place indicating that the price of the stock may be close to reversing. - Technical analysis tools like the intraday intensity indicator can be useful tools. Keep in mind, however, that they are not crystal balls that foresee the future. There are no magic indicators that tell us the future direction of a stock. These types of tools are used to measure probabilities. There are many different factors that impact a stock's price and no one indicator can measure them all.
