Accumulation and Distribution (A/D) as Forex Technical Indicator

The Accumulation and Distribution (A/D) indicator is a wider analog indicator (On Balance Volume). We can see price and volume variables in this indicator. The A/D is determined based on the adjustment of price and volume. It’s used to study and to confirm the market price to correct the transactional volume. The A/D indicator measures the index when the price changes into volume. When the index goes up, the price fluctuation in the indicator will show the same trend.

We can identify the potential buy signal when the A/D indicator starts to climb up. At this point, we may also start accumulating, as a part of our transactional volume which is associated to the ascending price movement. On the contrary, when the A/D indicator begins to fall down, it’s the time for us to open sell or allocate assets. Remember that the trading volume has a close relation with the declining price movement.

In the stocks market, there is a possibility of a price adjustment when a difference between the A/D and a particular stock occurs. Further difference of price changing will follow the indicator’s direction. For example: when the index goes up but the stock goes down, the price correction is happening.

How to calculate A/D

We can read the A/D indicator by calculating or subtracting some parts of the daily volume. When the closing price is close to the present maximum price, the size of an added part is bigger. If the closing price is close to the present minimum price, then the size of the subtracted part is bigger. If the high and low price is at the same level, the formula will  be like shown below:
A/D (i) = {(CLOSE(i) – LOW (i)} – {(HIGH (i) – CLOSE(i)}   * VOLUME(i) / (HIGH(i) – LOW (i) + A/D(i-1)

Where:

• A/D (i): is the A/D indicator for the current candle bar
• CLOSE(i): is the closing candle bar
• LOW (i): is the minimum price candle bar
• (HIGH (i): is the maximum candle bar
• VOLUME(i): is the volume
• A/D(i-1): is the A/D indicator for the prior candle bar

Volume shows up as a weight index, while the price is changing all the time. The bigger index (volume), the more significant price correction in the indicator within a particular time period.

Happy trading in PAMM Investments !