Crypto Academy Season 4 | Intermediate Level Course for Week 5 : [ Trading with Accumulation / Distribution ] by @allbert

Indicators give traders an insight into various parameters on price, from volatility, trendiness, and momentum. Some give more than one of these signals, others concentrate on just one of these parameters.

Today we shall be discussing the Accumulation Distribution indicator and how it gives a true signal of price momentum.

Good day, beautiful Steemians, I am @hadassah26, welcome to my Steemit crypto academy season 4 week 5 homework for professor @allbert on Trading with Accumulation / Distribution (A/D) Indicator.

^{Picture from source}

"1. Explain in your own words what the A/D Indicator is and how and why it relates to volume. (Screenshots needed)."

The Accumulation Distribution (A/D) indicator is a price/volume momentum indicator which tells us of the buy volume(accumulation) and Sell volume(distribution) periods of the market.
Explaining further, the Accumulation and Distribution periods of the market are the different times during which traders either have a buy pressure or sell pressure on the market.

The Accumulation Distribution indicator, therefore, tells us when we are in what season, it gives us a better confirmation of the current positions traders are taking in the market.
The Accumulation Distribution indicator trends upward during higher market entry periods and downward during higher market exit periods. This way we have a clue of other traders sentiment on the market.

We can now take advantage of the Accumulation and Distribution indicator by comparing it with the price and knowing when price is really trending upwards (therefore entering the market), price is really trending downward (therefore exiting the market), or when price and the indicator are having a divergence.

^{Accumulation Distribution on chart from Trading view}

How the Accumulation indicator Relates to Volume

The AD indicator which is a multiple of the Money Flow Volume and the Price volume which will be properly discussed in question answer 3, the Money flow volume makes very good use of the price volume, as it weighs the volume of the market and multiplies it by price data, this way it has a positive correlation with price volume and gives traders a signal of activity in the market.

^{Market Flow volume calculation from source}

"2. Through some platforms, show the process of how to place the A/D Indicator (Screenshots needed)."

Using Trading view, the Accumulation Distribution indicator can be added to the chart by:

• Open the desired chart, here say BTC/USDT.

^{Market Flow volume calculation from source}

• Click on the "fx Indicators" button, a list of indicators and search area is popped up

^{Market Flow volume calculation from source}

• Type in Accumulation and Distribution, it shows up on the search options, and then select

^{Market Flow volume calculation from source}

The Accumulation Distribution indicator has now been added to the chart, we can now start reading meanings to its signal.

^{Market Flow volume calculation from source}

"3. Explain through an example the formula of the A/D Indicator. (Originality will be taken into account)."

^{Market Flow volume calculation from source}

Taking an example;

^{LTC/USDT chart from Tradingview}

From the LTC/USD chart,

^{Accumulation Distribution calculation from source}

Our calculated Accumulation Distribution is equal to 84.553 M.

"4. How is it possible to detect and confirm a trend through the A/D indicator?"+

The AD indicator is a very easy to use indicator as it signals with just one line oscillating up and down telling the buy or sell volume of the market.

Using price volume as a major parameter, the A/D indicator gives either a buying or selling pressure of the market, therefore signaling price momentum (as the price volume is like a force behind the market price that pushes it to higher highs).

To use the A/D indicator one has to only check its current trend and then check how the price relates to it, if market follows the same trend, then it may be a good confirmation, else then there is a divergence and traders should do proper analysis as to know when and where next the price will go next.

The A/D indicator trends up when there is a market "BUY Volume" buildup, and downward when traders start withdrawing their positions "Sell Volume" buildup. This its trend which is independent of the price trend is used to detect future market trend.

Detecting a Trend with the A/D Indicator

Bullish Trend

^{Bullish Trend, chart from Tradingview}

Here we can see that the Bullish trend of chart coincides with the A/D indicator, it is a good "Buy" Opportunity.

Bearish Trend

^{Bearish Trend, chart from Tradingview}

Here we can see that the Bearish trend of chart coincides with the A/D indicator, it is a good "Sell" Opportunity.

When the price and the A/D indicator are going different ways, a situation known as divergence is said to occur;

Divergence

^{Regular Divergence, chart from Tradingview}

Divergence is the trending of an oscillatory indicator and price in opposite directions. This which may either give converging or diverging shapes tells the trader that the price is either about to see a bullish or bearish breakout.

Divergence with the A/D indicator is simple to detect and can be seen as shown below;

Bullish Divergence with the A/D indicator

^{Bullish Divergence with the A/D indicator, chart from Tradingview}

Here we can see that there is a Bullish divergence of price with the A/D indicator, we further analyze the market before making trade entry.

Bearish Divergence with the A/D indicator

^{Bearish Divergence with the A/D indicator, chart from Tradingview}

Here we can see that there is a Bearish divergence of price with the A/D indicator, we further analyze the market before making trade entry.

With the above discussion, traders can now detect incoming price trends with a divergence, and then confirm the trend when it synchronizes with the direction of the A/D indicator.

"5. Through a DEMO account, perform one trading operation (BUY or SELL) using the A/D Indicator only. (Screenshots needed)."

To perform this transaction, I will be using my MT5 desktop trader,

^{A/D sell pattern spotted, from Mt5 desktop trader}

Watching the 15 mins timeframe of the BTC/USDT, I see the Accumulation Distribution is beginning to see a downtrend, I enter a sell position as price is also following suit.

^{A/D trade data, from MT5 desktop trader}

^{A/D Sell trade, from Mt5 desktop trader}

Trade Data Below

Currency Pair	BTC/USD
Sell Price	54,800
Stop Loss	55,575
Take profit	54,347

"6. What other indicator can be used in conjunction with the A/D Indicator. Justify, explain and test. (Screenshots needed)."

As much as the Accumulation Distribution indicator is a great indicator, telling of market buying or selling power with the use of the market volume and current price data, the A/D indicator can also be supported with other indicators mostly to augument those parameters of price it doesn't signal, such as volatility, and trendiness.

A good example of such indicators is the Ichimoku Uno indicator.

Using the Ichimoku Uno indicator alongside the A/D indicator as shown below;

^{A/D and Ichimoku Indicator used together, chart from tradingview}

we can see that the Ichimoku cloud confirms trend direction from the Accumulation Distribution Sell volume buildup.
Using a second confirmatory indicator makes it easier and safer for trading.

Conclusion

Although the Accumulation Distribution Indicator is a lagging indicator, it is a great tool that helps traders tell when market volume has started going the other way, so they can start preparing to make different positions regardless of the current trend.

The Accumulation Distribution indicator makes trading with Indicators simple and fun. But traders should always be cautious to confirm entry positions.

Thanks.

cc @allbert