Accumulation-Distribution-Forex-Indicator
Watch the testing video here:
Accumulation/Distribution operates a standard market idea that during the periods of a bullish trend, most of the closing prices are in the zone of the current timeframe maximums, and in the downward market − in the minima zone.
We remind: under the accumulation, we mean buying up assets by large players before the onset of a strong bullish trend. Distribution refers to the process of closing positions at the peak of the up market.
In the process of strengthening the trend, both the number of participants and the volume of transactions are growing. On the downtrend, the opposite situation is assumed, but even then the price movement downwards is accompanied by an increase in the tick volume (see AD).
This allows Accumulation/Distribution to determine the ability of bulls and bears to close prices on extremes, taking into account their trading volume.
The volume acts as a weight factor when the price changes − the higher is the ratio (volume), the greater is the contribution of price changes (over a given time period) to the value of the indicator.
Since there are no data on real market volumes in the Forex terminal, the tick volume is used in the calculation (see Volume indicator), which shows only the information on the number of changes in the price per unit of time. The more changes in price (ticks), the more weight they have in the final value of A/D.
Calculation procedure
By calculation and behavior, the Accumulation/Distribution indicator resembles exponential moving averages (EMA): each subsequent value is added to the previous one, and the previous one is the sum of the remaining elements.
Basic calculation formula:
A/D(i)=((CL(i)-Low(i))-(High(i)-CL(i)))*VOL(i)/(High(i)-Low(i))+A/D(i-1)
where:
A/D(i) is the indicator value;
CL(i) − the closing price;
Low(i) − the price is minimal;
High(i) − the price is the maximum;
VOL (i) − volume;
A/D(i-1) is the previous value of the indicator.
Note the additional conditions in the calculation:
- If the closing price is at level of local price max, the final value of the indicator will be (+1)*(Tick Volume). If the closing occurs on min, then the formula takes the form (-1)*(Tick Volume).
- Closing above the middle and closer to the max: the value of the volume is multiplied by a positive number from the range [0; 1]. If lower − to multiply a number in the range [(-1); 0] is used.
- Close exactly in the middle of the range − the indicator is zero.
The A/D index accumulates the difference in volumes by the days when the closing price of the current day was higher than the previous day (accumulation) and the days when it was lower (distribution), and thus determines the balance between sellers and buyers.
