Hello everyone, hope you all are doing good? I'm back with the Part 2 and the Final Part of this amazing series, Understanding Accumulation / Distribution (A/D) Indicator. If you haven't read the Part 1, I strongly suggest you that by clicking here. In today's article, we should be explaining the A/D indicator better using it's formula & an illustration and also how to detect and confirm signals of the A/D indicator.
The formula for A/D indicator is,
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
How 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.