Accumulation/Distribution Technical Indicator
The Williams’ accumulation distribution indicator is also referred to as Williams’ A/D or WAD indicator, is a widely used technical indicator for determining trend variations. This indicator was developed by Larry Williams. Every investor can track the bullish and bearish pressure of a financial instrument by using the Williams’ A/D.
The Williams’ accumulation/distribution explains the market price action and it’s movements in two easy ways; accumulation and distribution, where accumulation depicts days where more volume is married with bullish price movement while distribution shows where more volume is linked with downward price movements. You can get the Williams Accumulation by adding the previous day’s A/D value to the recent day’s value. Changes in price and volume are a well known determinant of accumulation/distribution. The alteration of price has the volume acting as a weighting coefficient. What this means is that a higher coefficient would in turn mean a greater contribution in the change in price for the value of the indicator.
A more commonly used On Balance Volume is a variant of this indicator. As it stands these indicators are used to verify price alterations by means of measuring the volume of sales respectively. When the values of the Accumulation/Distribution grows, what this means is that a particular financial instrument is buying as its general market share of the sales volume is associated to a bullish trend of prices. When we see a drop in the values for this indicator, what this suggests is that the financial instrument is selling.
There’s a condition for divergence that occurs between the price of the instrument and the Accumulation/Distribution indicator. This means that in a case of divergence, the price of the instrument would head in the direction in which the indicator moves. What this means is that if the indicator grows, and the price of the financial instrument is dropping, then a reversal of price is eminent.
Mathematical the Accumulation/Distribution indicator can be gotten from adding the day’s A/D value to the previous day A/D value.
Today's A/D value = Today's close – TRL or TRH
TRL stands for the true range low; it’s either the previous day close or the day’s low price, whichever value is lower. TRH is the true range high; it could be the previous day’s close or the day’s low price, it is the higher value. TRL can be used to calculate A/D value when the day’s close is lower than the previous day’s, and TRH is employed when the day’s value is higher than the previous day’s.
The Williams’ A/D values of each day are being added to design s continuous indicator. When the price action diverges from the indicator then a signal is generated.
In summary, the Accumulation Distribution Indicator is a very useful tool to confirm price action and depict warnings of possible reversals in price action. Adding volume into price analysis isn’t a bad idea and Accumulation Distribution would help you do just that. The Chaikin Oscillator is another indicator that does price and volume analysis and is a topic for another day.