Williams’ A/D is the accumulated sum of positive “accumulational” and negative “distributional” price movements.
For example, if the current closing price is higher than the previous one, W/AD increases by the difference between the current closing price and the true minimum. If the current closing price is lower than the previous one, W/AD decreases by the difference between the current closing price and the true maximum.
The term “accumulation” denotes a market controlled by purchasers and the term “distribution” means that sellers control the market.
Divergences between the indicator and the price are a signals. Like most indicators, W/AD leads the tool price. In other words, when a divergence appears, the price changes its direction according to the indicator.
- If the price reaches a new maximum, but the accumulation/distribution indicator cannot reach a new maximum, it means that the security is distributing itself. It is a signal for sell.
- If the price reaches a new minimum, but the accumulation/distribution indicator cannot reach a new minimum, it means that the security is accumulating. It is a signal for buy.
Williams’Accumulation/Distribution indicator
Calculation:
To calculate the accumulation/distribution indicator, first you have to find a “True Range High” (TRH) and “True Range Low” (TRL):
TRH (i) = MAX (HIGH (i) || CLOSE (i – 1))
TRL (i) = MIN (LOW (i) || CLOSE (i – 1))
Then you must find the current value of accumulation/distribution (CurA/D) by comparing today and yesterday’s closing prices.
If the current closing price is higher than the previous one, then:
CurĐ/D = CLOSE (i) – ТRL (i)
If the current closing price is lower than the previous one, then:
CurĐ/D = CLOSE (i) – ТRH (i)
If current and previous closing prices coincide then:
CurĐ/D = 0
Williams’ accumulation/distribution indicator is a growing sum of these values for each day:
WĐ/D (i) = CurĐ/D + WĐ/D (i – 1)
where:
- TRH (i) – the True Range High;
- TRL (i) – the True Range Low;
- MIN – the minimum value;
- MAX – the maximum value;
- || – the logical OR;
- LOW (i) – the minimum price of the current bar;
- HIGH (i) – the maximum price of the current bar;
- CLOSE (i) – the closing price of the current bar;
- CLOSE (i – 1) – the closing price of the previous bar;
- CurĐ/D – means current value of accumulation/distribution;
- WĐ/D (i) – the current value of William’s Accumulation/Distribution indicator;
- WĐ/D (i – 1) – the value of William’s Accumulation/Distribution indicator on the previous bar.