The Accumulation\Distribution Forex indicator is a very interesting trading indicator, as it is one of the few indicators that take into account the volume of trading. As one, it can give us insight on the true movements in the market, beyond just the price. It was developed by famous trader Larry Williams, which have also developed the Williams %R indicator.
The Accumulation\Distribution is calculated by adding up all the relative movements of each candle and multiplying each candle by its volume. The difference between close and low is added to the difference between the high and close (for each bar), then divided by the difference between high and low and multiplied by the volume of that candlestick. The indicator line is the sum of all those values.
It can be traded in various methods, the first of them being the divergence. When you identify a divergence between price trend and the trend of the Accumulation\Distribution line it may be a signal that the trend of price can reverse and a new trend is about to begin. If price’s trend is not supported by volume it means that it is not a real trend and it is short-lived.
We can see in the example that price was rising and creating higher highs, as the Accumulation\Distribution line was creating lower highs – this is a classic divergence that gave us early signal of the upcoming downtrend. It is worth mentioning that divergences don’t provide good buy signals, as downtrends don’t really need volume to advance and can continue even if volume is low. On the other hand, if the price is trending and the A\D line supports the trend and trends in the same direction it can be a signal that the trend is real and has real strength both from price and from volume. You can add up to your position in this case or enter an additional breakout trade when new highs are created (or new lows, in a downtrend). Note that the A\D indicator don’t take into account gaps, so if price gaps it may not reflect in the A\D and its value may become biased to the opposite direction.
You can use it as a trend indicator by adding a moving average to it and trading the crosses of the MA. A cross from below is a long signal, while a cross from above is a short signal
You can download the MT4 (MetaTrader 4) indicator of the A\D here:
Download Accumulation\Distribution MT4 Indicator
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