Good day everyone. Thanks to @allbert for such a wonderful lecture on Trading with Accumulation / Distribution (A/D) Indicator. I will be doing the homework from the lecture, so sit back and look for somewhere quite quiet and comfortable as you read through this amazing article I created just for you(😉). Let's get started!!!
Question 1: Explain in your own words what the A/D Indicator is and how and why it relates to volume.
From my very understanding, A/D indicator is a real-time indicator that plays a vital role in helping traders make good trading decisions. This indicator helps traders to know accumulation and distribution period of an asset, which will help traders to be able to detect trend direction and predict trend reversals.
Accumulation period is that period when the value of the asset is very low, and traders are buying more and more of the assets as they believe the asset value is below it's fair value, and this will result to the increase in the price of the asset.
Distribution period is that period when the value of the asset is very high, and traders are selling their assets in order to take point as they believe a market reversal trend is very close, and this will result to the decrease in the price of the asset.
As you can notice, the A/D indicator can help traders identify the trend of the market and predict market reversals. Because after accumulation period(bearish market), comes a bullish market and after a distribution period(bullish market), comes a bearish market.
The reason for these trend reversals, is because when traders are accumulating asset, they normally don't sell their assets cheap, hence, that will boost the price of the asset, hence, bullish trend afterwards. Same with distribution period, as traders are selling more of the token, the value of the token will begin to fall, which will lead to panic selling, and the value the token will start decreasing, hence, bearish trend.
A/D indicator relates to volume, because it is a real-time indicator and also, the higher the volume during accumulation and distribution, the strength of the market trend, be it bullish or bearish.
Question 2: Through some platforms, show the process of how to place the A/D Indicator
I will be making use of the Huobi Exchange to show how to add the A/D indicator on a trading chart.
First, visit Huobi Exchange, by clicking here. Below is the image of the homepage.
At the header section, click on Spot Trading, you will notice a dropdown, then click on Exchange. Look at the image below for more understanding.
You have successfully arrive at the Exchange section of Huobi Exchange. You can search for your coins and place your trade. But that's not what we are after currently, as we would like to see the chart bigger. You have to click on Full Screen button, which you can clearly see below.
This is how the trading chart looks like on Huobi Exchange(image below).
To add the A/D indicator on the chart, you will have to click on Index, and search for the Accumulation/Distribution indicator and click on it once you have found it. Look at the image below for more understanding.
This is how a trading chart with A/D indicator looks like on Huobi Exchange.
You can modify the A/D indicator to your preference, by clicking on the setting(a.k.a format) options. You can change style of the A/D indicator, by changing the color or the intensity to your choice. For me, I'm changing the color from ash to black and I'm increasing the intensity.
Once you have chosen your preference in the A/D indicator setting, you are now ready to start using the A/D indicator on Huobi Exchange platform.
Question 3: Explain through an example the formula of the A/D Indicator
The formula for A/D indicator is,
Where;
Where;
Illustration
This is a real time illustration, using the BTC chart as at the moment of writing this article.
Important details from the chart above are;
Close Price = 54,994
Low Price = 39,607
High Price = 56,095
Current Volume = 71,081
Previous A/D = 71,538
MFM = (54,994 - 39,607) - (56,095 - 54,994) / (56,095 - 39,607)
MFM = 15,387 - 1,101 / 16,488
MFM = 14,286 / 16,488
Money Flow Multiplier(MFM) = 0.87
CMFV = 0.87 x 71,081
Current Money Flow Volume(CMFV) = 61,840
A/D Indicator = 71,536 + 61,840
A/D Indicator = 133,376
Question 4: How is it possible to detect and confirm a trend through the A/D indicator?
From the image above, you can clearly see how to detect and confirm a trend through A/D indicator.
From the image, whenever price is falling, A/D indicator is falling too and whenever price is rising, A/D indicator is rising too. The reason for this, is that, when price is falling, this is the distribution period, hence, traders are selling, thus, price falls and A/D indicator falls too. And when price is rising, this is the accumulation period, traders are buying and hodling, thus, price rises and A/D indicator rises too.
Question 5: Through a DEMO account, perform one trading operation (BUY or SELL) using the A/D Indicator only
I will be using Tradingview to demo trade. I will be making sell trade on BTC/USDT.
I took this position, because the Price of BTC was in the distribution period and the A/D Indicator was falling, indicating a fall in price also.
Entry Price = $55,066
Stop Loss = $55,150
Take Profit = $55,000 (Wanted to make a $66 profit).
Profit Realized = $35.38
After some time, I went to check the chart again, because I knew the price will fall even further and I was accurate. Truly the A/D indicator works quite effective.
Question 6: What other indicator can be used in conjunction with the A/D Indicator. Justify, explain and test
As a trader, it is always wise you have a confirmation indicator or strategy, in order to filter false signals.
Since A/D indicator is real time indicator, I feel the best indicator to use to confirm trade, is Moving Average. Let me show you, my buy and sell set up using the A/D indicator and MA indicator as my confirmation indicator
Buy Set Up
To get the best best buy set up using this indicators is quite simple. First wait for your A/D indicator to start accumulation i.e to start increasing. If the MA indicator is below price, enter your trade, because that's a perfect buy set up.
Sell Set Up
To get the best best sell set up using this indicators is also quite simple. First wait for your A/D indicator to start distributing i.e to start decreasing. If the MA indicator is above price, enter your trade, because that's a perfect sell set up.
Let's justify it below to see if I'm accurate.
Let's now test on Tradingview.
Entry Price = $54,595
Stop Loss = $54550
Take Profit = $54,650
Profit Realized = $54.59
Special thanks to you, @allbert, for organizing this amazing class and giving this excellent assignment, as it has helped me in the understanding Accumulation / Distribution (A/D) Indicator.
Hello @menoski
I'm sorry to tell you that your post has been disqualified because you edited the content after the deadline even though I specifically prohibited it. It is clear that in your original post made 2 hours before the deadline you published content related to the class of teacher @Sapwood but without any tag so that we could not view it, and with the title of my class.
I don't know what you tried to do but unfortunately I can't accept your post under these conditions. I recommend that for the next one you take your time to make your post on time.Total |0/10
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C'mon @allbert, I had the article done, it was just the editing of the images that took my time. I submitted before deadline. In life, there's always loopholes, I found this loophole and I won't do it again. It took me hours making this article.
I love perfection, that's the issue with me, and that's why I took my time to present the work well, I didn't know of editing after deadline is prohibited. Kindly do me a favor @allbert, it won't repeat itself again. You know I did great with assignment, right? Grade it.
You should know that I'm have been a very serious student, and if I had known it was prohibited, I wouldn't have published at all. I finished the editing about 1 hour after the deadline. The reason I didn't put your tag and put sapwood article, it's that, I didn't want the work to look unfinished and without images. I feel bad currently, that I broke violated your instructions and my hardwork is just wasted. I really did put a lot of effort. It's a big mistake on my part. Kindly overlook it and grade me. Thanks in advance @allbert
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