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Forex Trading Reviews & News 
By: Terry Allen
Accumulation/Distribution is a price and volume FX technical indicator that was developed by Larry Williams who has been accredited with the designs of a number of Forex Analytical tools. The A/D indicator is, in fact, a variant of the popular ‘On Balance Volume’ indicator.
The central concept behind this indicator is that it can be used to determine if market sentiment is driven by the buyer or the seller. This task is accomplished by analyzing the position of the indicator relative to that of price. For instance, if the A/D indicator is rising with relation to the price, then this implies a buyer’s market and that the currency pair, of interest, is being accumulated. In contrast, a falling A/D reading is indicative of a sellers’ market and that the currency pair is experiencing distribution.
Larry Williams designed his indicator so that when divergences begin to emerge between the A/D indicator and price, then this is a strong warning that a change in the current price direction could be imminent. You need to understand the following key features of this indicator in order to optimize its use:
1. Williams determined accumulation should be defined as the buying pressure created by the movement of price from its day low to its day close. Similarly, distribution represents the selling pressure caused by price moving from its day high to its day close.
2. Williams developed the following formula to calculate the values of the A/D indicator.
Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period's volume
Close = value of price at day close
Low = Lowest value of price recorded during day
High = Highest value of price recorded during day
3. From his research, Williams showed that an indicator calculated in such a way prompted buying when it was at its lowest points and selling whilst at its peaks.
4. The most important feature that you should grasp about the A/D is that when discrepancies emerge between its readings and price, a change in the current price direction should be expected soon.
Williams demonstrated that price action had a predominant tendency to move in the direction of his Accumulation/Distribution indicator. As such, your best use of this Indictor would be to provide you with advance notice when the price direction of your preferred currency pair could begin to reverse.
Williams demonstrated that price action had a predominant tendency to move in the direction of his Accumulation/Distribution indicator. As such, your best use of this Indictor would be to provide you with advance notice when the price direction of your preferred currency pair could begin to reverse.
