Trading with Accumulation / Distribution (A/D) Indicator - Crypto Academy / S4W5 - Homework Post for @allbert

Hello Friends, It is great I'm starting early with the Intermediate lessons this week. I welcome everyone to my blog as we all get engage reading through my post as presented by Prof @allbert on "Trading with Accumulation / Distribution (A/D) Indicator".

(Designed in Canva)

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 Indicator is also an important technical indicator used by traders in the financial & cryptocurrency space to propagate their use of trading strategy to maximize profit in the trade. This is usually observed to have a direct correlation with trading volume at a given period. There is no fixed volume traded in the market that is the same rather the behavior varies from time to time.

My first experience with the Accumulation & Distribution was the Wyckoff's Concept of the Composite Man where the market is seen as a single entity and by the Institutional Man. In this scenario, the Institutional Man is driven by different levels or stages in the market that is important for the retail trader to take cognizance of. And these different levels are the different Volume behaviors from the institutional Man which starts with the Accumulation, Re-Accumulation, Distribution, and Re-distribution. The Re-Distribution or Accumulation are different Retest points before the trade is observed to follow the initial trend.

Therefore, the Accumulation levels simply denote a period of an asset acquisition or where Buying Pressure is observed to be higher than selling pressure. That is to say, price trends are observed to be bullish and rise as this pressure continues. Whereas in the Distribution scenario, there is a shield off of accumulated assets which significantly see Selling Pressure higher than buying pressure. The market price is observed to decline with a bearish trend in this scenario (Distribution).

(Screenshot from Trading View Site)

Lastly, the A/D indicator can aid traders to make informed trading positions as this simply works in line with the forces of Demand and Supply. An increase in buying pressure indicates increases in the price of that asset, and also a decline in buying pressure (More selling pressure) indicates a decline in the price of that asset.

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

To add the A/D indicator on a Chart

• Launch the TradingView Chrt
• Click on the fx option on the top screen
• Then search for accumulation from the search box
• Click on the first selection
• One can change the INPUTS & STYLES of the A/D indicator by clicking on the Settings icon on the indicator.

(Screenshot from Trading View Site)

(Screenshot from Trading View Site)

(Screenshot from Trading View Site)

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

In calculating we have to take into cognizance the following parameters;

• The Money flow Multiplier - takes care of the High, Low, and closing prices.
• Money flow Volume

therefore;

1. Money Flow Multiplier

= (Closing Price - Low price of the period ) - (High price of the period - Closing price) /High - Low

2. Money Flow Volume

= Money Flow Multiplier x Period Volume

Therefore the A/D
= Previous A/D + Current Period Money Flow Volume

Support Source

For example, if a given asset has a closing price of $10, a low price of the period of $4, and a high price of the period of $12. The asset volume observed was $12M.

Money Flow Multiplier = (Closing Price - Low price of the period ) - (High price of the period - Closing price) /High - Low
Money Flow Multiplier = (10 - 4) - (12 - 10)/ (12-4)
= 4/8
Money Flow Multiplier = 0.5

Also Money flow Volume = Money Flow Multiplier(Already derived above ) x Period Volume
= 0.5 x $12
Money flow Volume = $6M

A/D = Previous A/D + Current Period Money Flow Volume
= $12M + $6M
A/D = $18M

Another Example from the chart below;

Closing Price - 3374
Low Price - 3275
High Price - 3425
Period Volume - $77m

"Money Flow Multiplier" = (3374-3275) - (3425-3374) / 3425-3275
= (99 - 51)/150
= 48/150
"Money Flow Multiplier" = 0.32

Also Money Flow Volume = 0.32 x $77m
"Money Flow Volume" = $24.64m

A/D = $77m + $24.64m
A/D = $101.64M

Question-4 How is it possible to detect and confirm a trend through the A/D indicator? (Screenshots needed)

Uptrend Confirmation Using A/D Indicator

This is specifically observed when we have higher BUYING PRESSURE in the trade. This is usually a scenario that is found in the ACCUMULATION area where there are more buying activities than selling activities in the market. This causes a notable uptrend/bullish movement in line with the A/D indicators. That is, the price trend is in cognizance with the A/D Indicator

(Screenshot from Trading View Site)

Downtrend Confirmation Using A/D Indicator

This is specifically observed when we have higher SELLING PRESSURE in the trade. This is usually a scenario that is found in the DISTRIBUTION area where there are more selling activities than buying activities in the market. This causes a notable Downtrend/bearish movement in line with the A/D indicators. That is, the price trend is in cognizance with the A/D Indicator

(Screenshot from Trading View Site)

Trend Divergence Confirmation Using A/D Indicator

This is the most important use of the A/D indicator as price trend and the A/D indicator are observed not to agree at a given period but this significantly shows trend exhaustion or anticipated market correlation & Reversal. Immediately this happens, there is every likelihood of a trend reversal in agreement with the indicator. Therefore, traders are expected to make proactive trade positions each time this happens. Trend Divergence may be seen as either Bearish or Bullish as the case may be.

(Screenshot from Trading View Site)

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

(Screenshot from Trading View Site)

In the above scenario, this is a typical A/D Indicator in conformity with the market trend (Downtrend Movement). There are significant distribution activities ongoing at this period whereby there are more Selling activities than buying activities and hence a decline in asset price.

This bear movement was halted at the support level at 0.00001119 before making an uptrend reversal. An entry trade order was entered at 0.00001123 when there was a visible and valid uptrend break.

Stop-loss was placed a little below the breakpoint to a reward risk ratio of 1:1 while having the Stop loss taken at 0.00001161.

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

No indicator can be categorically classified as a stand-alone indicator with perfection. Indicators are observed to do better when combined with other indicators for efficiency and effectiveness. The A/D indicator is no exception in this regard and I think it can be combined for better readings and results when used with the RSI Indicator. This is a momentum indicator that measures the speed of the trend with strength levels at various levels.

This helps to indicate Overbought and Oversold levels at bands 70 and 30 respectively. When we have the Accumulation and Distribution levels which represent the Buying pressure and Selling pressure respectively vis-a-vis the trends they come up with. The RSI indicator helps us to know when they are in either the Overbought or Oversold regions which guides the trade to anticipate a possible market correction.

Most importantly, this helps to filter fake-outs or false signals. Trend divergence as well sideways and undecided trends can be quickly picked when indicators are combined.

(Screenshot from Trading View Site)

From the image above we can see a price trend with a bullish run until it got to its overbought levels where RSI>70. At this point price trend was at its peak and the asset was overvalued. Therefore we should anticipate a market correction which was observed shortly with a downtrend movement. With this additional indicator, traders can easily anticipate market trends and make proactive trade positions for profiteering.

Conclusion

The A/D indicator is also an important indicator that helps give trend direction in line with demand and supply activities (Buy/sell) in trade. The Accumulation level denotes more Buying activities whereas Distribution represents more selling activities. These price trends are usually seen to be in tandem with the A/D indicator signals which perfect the Bullish or Bearish trend they represent respectively.

But there are always trend divergence which does not follow or is not in line with the A/D indicators. In this case there a likelihood of trend exhaustion at this point which signals market correction or Reversal.

Thank you prof @allbert for putting up this wonderful task
Written by @xkool24

All screenshots used are from tradingView site.