The Williams Accumulation/Distribution (W_A/D) indicator is a valuable tool for traders, designed to analyze the cumulative sum of positive and negative price movements in the market.
Here's how it works: when the closing price of an asset is higher than its previous closing price, the W_A/D increases by the difference between the current closing price and the true minimum price. Conversely, if the current closing price is lower, the W_A/D decreases based on the difference between the current closing price and the true maximum price.
In trading terms, "accumulation" refers to a market where buyers are in control, while "distribution" indicates that sellers are dominating.
Divergences between the W_A/D indicator and the asset's price can signal potential market movements. Typically, when you notice a divergence, the price tends to reverse in line with the indicator's direction.
- If the price hits a new high but the W_A/D doesn’t follow suit, it’s a red flag that the asset might be in the distribution phase—consider this a sell signal.
- If the price reaches a new low while the W_A/D fails to do the same, it suggests accumulation is happening—this is a potential buy signal.
Williams' Accumulation/Distribution Indicator
How to Calculate the W_A/D:
To calculate the W_A/D, you’ll first need to determine the 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))
Next, find the current value of the W_A/D by comparing today’s and yesterday’s closing prices.
If today’s closing price is higher than yesterday’s closing price, use this formula:
CurA/D = CLOSE (i) - TRL (i)
If today’s closing price is lower, you’ll want to use:
CurA/D = CLOSE (i) - TRH (i)
If the closing prices are the same, then:
CurA/D = 0
The Williams Accumulation/Distribution indicator is simply the running total of these values:
W_A/D (i) = CurA/D + W_A/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;
- CurA/D - the current value of accumulation/distribution;
- W_A/D (i) - the current value of the Williams Accumulation/Distribution indicator;
- W_A/D (i - 1) - the value of the Williams Accumulation/Distribution indicator from the previous bar.
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