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Forex Accumulation Distribution Indicator

The Forex Accumulation Distribution Indicator is a momentum indicator that measures supply and demand by determining whether traders are “accumulating” (buying) or “distributing” (selling) a particular financial instrument by identifying divergences between price and volume flow. The mathematical formula is represented as follows:

Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period's volume


The primary idea has always been that volume (or money flow) could be a leading indicator to price action. As a variant of the frequently used indicator On Balance Volume, this technical indicator can be employed to confirm changes in price action by looking at market session if the volume on the buying end is more than the volume on the selling side.


For some who are not aware, this indicator was designed by Larry Williams; who happens to be the creator of a lot of technical tools such as the Williams %R indicator. Larry Williams is still active in the trading/coaching business, he focuses on trading of commodities and futures
On our activity chart, if the Accumulation Distribution indicator is rising alongside price, then this could translate into the fact that the financial instrument of concern is being bought or accumulated. A dipping A/D indicator reading shows that a bears market is depicted by the distribution of the financial instrument.

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Larry Williams tweaked this indicator in such a way that when the market begins to experience a divergence between the A/D and price, this is a good proof that a change in the price direction is imminent.
  fig1a Fig. 1.a
To be able to fully understand the Accumulation Distribution indicator, its basic features needs to be understood.
Larry William’s studies came to a final note that the simplest way of determining accumulation was by defining buying pressure as the price action steps from the low of the day through to its close. In the same vein distribution could be best seen a bear pressure that defines price action from the high of the day through to its close.


Larry Williams’s research showed that a technical indicator is calculated in a manner that it prompts buying when it is aligned to its lowest points and selling when it is aligned to the top. Just like we mentioned earlier, when the A/D indicator spikes, we are sure that the buyers are pushing the price of the financial instrument, and a dip in the Accumulation Distribution shows seller dominance in the market.


An important thing to keep in mind about the Accumulation Distribution indicator is the simple fact that when we find discrepancies between the price action and readings, it suggests that the current price direction is about to take a turn in the opposite direction.
Having explained that in Fig. 1.a above, where we saw A/D indicator falling amidst rising price. This was a clear signal that things were about to change. Williams’s research also describes that in a lot of scenarios, we find price action showing affinity to go in the direction of the Accumulation/Distribution indicator.



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Comments  

 
0 #4 klimatyzacja do 2014-05-13 01:10
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0 #3 free casino slots 88 2014-05-12 21:43
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Your website provided us with valuable information to work on.
You have done an impre?sive ?job and our entire community will be thankful to you.
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0 #2 Alex Ivanov 2013-02-18 03:29
As is with all indicators - precise buy or sell signals are always based on individual trader's interpretation of the signal.

With the Forex accumulation distribution indicator, when there is a divergence between the A/D and price, this is an indication that price will change direction soon. Exactly when this will happen is up to the trader to "guess".

An idea to trade this is to scale in trades, when you think price might be topping out or bottoming, you could get in with a small trade, then add to the position if the price moves against you more. Please be cautious and exercise caution as you're picking tops or bottoms here which can never be precise.

Good luck!
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0 #1 montti m khatra 2013-02-17 17:04
the question is when to enter the trade here for a sell trade?
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