A/D Indicator

Definition:

The Accumulation/Distribution or A/D Indicator was created by Marc Chaikin and consists of a variation on the more popular On Balance Volume indicator. The A/D Indicator is based on price changes weighted by the trading volume seen when they occur.

Specifically, the indicator adds or subtracts the trading volume seen during each period proportionally weighted depending on how that period’s close falls between the period’s low and high exchange rates.

In general, when the A/D level increases, that indicates the currency pair is being accumulated or bought since a higher volume trades during upward moves. When the indicator declines, that means the pair is being sold or distributed since volume is higher on downward moves.

Sample Graph:

Usage:

When using the Accumulation/Distribution Indicator in practice, traders typically look for divergence between the A/D Indicator and the exchange rate. When such divergence is seen, it signals a coming directional change in the market.

For example, if the price makes a new significant high within an upwards trend, but the A/D Indicator does not, then it might indicate that the up trend is losing steam and the exchange rate may soon reverse direction. Conversely, if the exchange rate makes a fresh low in a down trend, but the A/D Indicators fails to do the same, then that would indicate the down trend might be due for reversal.

The A/D Indicator can also be used to confirm the continuance of a trend when such divergence is absent. In this case, either new lows in the exchange rate prompt new lows in the A/D Indicator to confirm a down trend, or new highs in the rate yield new highs in the indicator to confirm an up trend.

Calculation Method:

A positive or negative weighted volume number is added to the previous value of the A/D indicator to obtain its current value.

Generally, if the close is nearer to the high, a more positive weight will be added. If the close is nearer to the low, then a higher negative weight will be deducted from the previous A/D value. If the close falls exactly in the middle of the high and low prices, then the A/D indicator’s value does not change.

Define:

• n= the number of periods used in the calculation.
• High(n)= the highest exchange rate for bar “n”.
• Low(n)= the lowest exchange rate for bar “n”.
• Close(n)= the closing exchange rate for bar “n”.
• Volume(n)= the volume traded during bar “n”.
• A/D(n)= the Accumulation / Distribution Indicator’s value for the current bar “n”.
• A/D(n-1)= the Accumulation / Distribution Indicator’s value for the previous bar “n-1”.

Calculate:

• A/D(n) =(Close(n) - Low(n)) - (High(n) – Close(n)))*Volume(n)/(High(n) – Low(n))+ A/D(n-1)

Practice A/D Trading

Technical analysis with A/D is a demanding skill that requires practice to master. We recommend that you use a demo account to train yourself for free before applying your skills to real money trading.
Most reputale trading platforms today (for example: GFC Trader, AVA Trader, Meta Trader) feature technical indicator functions which can be applied on real-time charts. You can open a free account, download the trading software and start sharpening your technical analysis skills today!

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