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Accumulating and Distributing: a Thing or Two About the Accumulation/Distribution Indicator

The Accumulation/Distribution indicator (AD) was first described by L. Williams in 1972 in his book “How I Made One Million Dollars”. Let's talk about it in a little more detail.

AD

Accumulation/Distribution is a volume-based indicator accounting for the general trend, volume of trading as well as the opening/closing prices and low/high prices. On the plus side, this indicator is synced with the price rather than based on calculating an average value. AD is primarily a trend indicator that both adequately determines the price at the observed point in time and is a useful tool for making forecasts. If selected, this indicator is usually displayed below the main chart of security price movement.

Interpreting AD

There's a mathematical formula that helps interpret this indicator. However, most traders confine themselves to the visual observation since the Accumulation/Distribution indicator is sufficiently insightful in itself.

The indicator shows that the nearer the closing price is to the high or low price, the bigger share is obtained by the bulls (traders operating for a rise) or bears (traders operating for a fall).

Accordingly, if the indicator shows the price closing in a downtrend (the indicator value is less than zero), bears are dominating; if the price closes in an uptrend (the indicator value if greater than zero), bulls are dominating. On other words, the market is owned by the former or the latter.

Moreover, if the trend updates the extreme value (maximum or minimum) while AD does not reproduce this update, it may mean the trend is about to reverse.

As we can see, the Accumulation / Distribution indicator may be the key indicator for selecting the trading strategy on the cryptomarket.