Larry Williams – Accumulation and Distribution

buying should be considered when price makes new low, yet, accumulation/distribution indicator fails to make a new low File size: 83.2 MB

Larry Williams – Accumulation and Distribution

Williams Accumulation /Distribution Designed by Larry Williams To measure positive and negative market pressure. It should not be confused with  which is completely different indicator developed by Marc Chaikin and Based on volume and price data.  In technical analysis, it is used to assess – how many shares were acquired during an up-Move (during purchasing) and The number of shares that were sold in a down movement (during buying).  It is solely based upon price data and here accumulation/distribution represents sum of positive (accumulation) and negative (distribution) price movements.

Signals and Technical Analysis and Trading Systems

Technical analysis Williams Accumulation /Distribution This is used for measuring/compare bullish and Bearish price pressure According to Larry Williams Technical analysts should in theory look for divergence between prices. and An indicator. He stated that:

• buying should be considered when price makes new low, yet, accumulation/distribution indicator fails to make a new low;
• and selling should be considered when price makes new high, yet, accumulation/distribution indicator fails to make a new highs.

If the price rises, WAD will also increase – positive price movements can be added to this indicator. Negative price movements are subtracted form WAD during price decline. and This indicator is moving down. However, since Larry Williams True High (TRH). and True Low (TRL), in Accumulation/Distribution Calculations (see below) could indicate that price may reach a new high. and WAD doesn’t work or the price drops to a New Low and WAD fails to do it. It is important to examine the WAD calculations closely in order understand the exact nature of the price/indictor divergence. and Seek out the price behavior that could cause a divergence and This is why it should be considered a buy/sell possibility.

You can see the Chart #1 blow to get a more detailed example of a situation where you might witness a negative price divergence and Accumulation Distribution Indicator – When price reaches a new high and WAD fails at making a new record. Mathematically, the Accumulation/Distribution This situation can be calculated when:

• After price up-Move when price was at new highs. We are experiencing a small correction.
• Within this correction, we had negative bars (bars close to the previous close). and These negative bars had strong openings (bar’s open higher than previous close).
• We had a strong recovery, which made it a new record.

If we see a negative price/WAD divergence we might say we are looking for a correction with a specific price behavior. This is when we have strong openings (above the previous close). and Then the trading volume drops, which can lead to negative trading. This indicates that, despite a positive opening, we have steady trading. and Negative trading is caused by strong selling (or bearish) pressure that moves the price down. We have only a shallow correction due to the strong positive opening despite strong bearish Pressure. We may see a new high in the price if we experience a strong spike of Bullish Pressure during this shallow correction. and Accumulation Distribution will not reach a new peak. Overall, the Bears are very strong. and can generate steady selling pressure. However, there are strong spikes in the Bullish Pressure which cause strong positive opening, but steady. and Strong bearish pressure causes the price to fall at the final. If we see a strong recovery and news high, it is possible to assume that the recovery was due to a strong rise in Bullish pressure and It’s the same as always, but it ends up strong and Price should fall due to the constant Bearish pressure and This is a great moment to think about selling.

When there is a negative divergence in price, it is called “Negative Divergence”. and accumulation/distribution indicator we witness change in the market behavior – previously steady and Bulls that are strong with bears that are weak turned into strong and Bears that are steady and have a strong short-There were high levels of Bullish pressure.

The Williams’ Accumulation/Distribution Indicator is a leading indicator. It predicts future price changes. If there is a negative price/indicator divergence, it will predict future price falls-Turn while the price is at new highs. As with all leading indicators the accumulation/distribution indicator is not always played. It is possible to wait until a downturn confirms before you make a decision. “sell” trade. A confirmation that the price has dropped is possible since a “sell”, as already confirmed by the WAD indicator.-Turn my not required to be very strong.

Chart 1: The situation when there is a negative divergence in price and AccumulationThe /distribution indicator can be seen:

The explanations of the mechanics behind positive price/WAD divergence are very similar to those of negative divergence (see chart 2 below). You are basically looking for a moment during down-Trend you see a slight bounce up (recovery), when price bars have negative openings but positive closes (indicator of strong). and consistent bullish pressure). After the modest bounce-up we see decline and We see price as a new low and accumulation/distribution fail to make a new low, we have a sign that the bearish pressure is weakling and It isn’t consistent (only spikes in bearish pressure). and Consistent and The Bulls could be under increasing pressure. and It could reverse the trend upward in price. As was mentioned above, this could be an ideal time to consider buying. However, it may be a wise practice to wait for confirmation of an uptrend.-reversal.

Chart 2 Positive divergence in price and AccumulationThe /distribution indicator can be seen:

Williams Accumulation-Distribution Inteday traders love the indicator and intraday scalpers. This indicator can be used as a signal line in a simple trading system. An EMA is used for spotting changes in a direction of an indicator. When WAD begins to fall, it falls below the EMA that was applied to it and If the trend of WAD line changes from down to up it advances above its EMA. Below is an example trading system which is based on Williams Accumulation-Distribution indicator and Its EMA crossovers are:

• You might consider buying when Williams Accumulation-Distribution Line crosses below its Signalsline (EMA applied for WAD).
• Sell when Williams Accumulation-Distribution Line crosses over its Signals line.

Chart 3 Stock chart for Apple (AAPL), 1 bar = 1 Minute and Williams Accumulation-Distribution

Directional Williams’ Accumulation/Distribution Formula and Calculations

1. Calculate True high (TRH). and True Low (TRL).

TRH = Current high bar or precious bar close, regardless of what is higher
TRL = Current low bar or previous close.

2. Calculate current bar Accumulation/Distribution:

If current close is greater than previous close then
AD = Current Close. TRL
If the current close is lower than the previous close,
AD = Current close to -TRH
If current close is not the previous close, then
AD = 0

3. Calculate Williams Accumulation Distribution which is equal to the sum total of AD values

WAD = Previous WAD + AD

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