Accumulation/Distribution ( A/D ) refers to the standard package of technical analysis tools of Metatrader and other common trading platforms. The name of the indicator is translated as “Accumulation/Distribution”, reflecting the meaning of its meaning and operation.
Today we will take a closer look at this tool and see how it works on Forex. This indicator may be especially interesting for supporters of the VSA method, since it takes into account trading volumes in its analysis.
The author of the tool, world-famous theorist and practitioner of technical analysis of stock markets Mark Chaikin, was able to describe the stages using volumes and price behavior:
- Savings – purchases of shares by investors and speculators;
- Distributions – sales of securities while fixing income.
The foreign exchange market looks somewhat different: the A/D curve interprets the stage of accumulation or growth as an increase in the strength of the bulls, and perceives the distribution or fall as an increase in the pressure of the positions of the bears.
Accumulation/Distribution is considered the most accurate forecast indicator in the package of four standard tools in the “Volume” section. The A/D formula includes all the indicators of the On Balance Volume indicator and the Larry Williams distribution index.
Description
We continue the series of detailed reviews about binary options oscillators that will be useful to our readers.
Read our materials, choose your strategy, practice trading and achieve the maximum in trading on the financial market. Today we will tell you about one of the technical indicators - Accumulation/Distribution (A/D), which is common among market players. How it differs from other instruments, what its advantage is over other oscillators, as well as the rules of money management and the features of expiration with A/D - you will learn about all this in the material. The Accumulation/Distribution (A/D) indicator is another technical indicator, the indicators of which depend on the price dynamics, as well as the volume of the asset; it links changes in price and volume. The author of the oscillator is the famous trader Mark Chaikin. It’s interesting that the tool had to be developed due to a basic lack of information. Daily newspapers did not publish trend opening prices, so the trader had to find his own solution for this, which led to the invention of the oscillator. When A/D was invented, it became quite successfully used in binary options trading. Later, the Accumulation/Distribution indicator became the basis of the Chaikin oscillator.
For A/D, market volume is a weighting factor for price changes. It is fair to talk about the following pattern: the higher the market volumes, which affect its dynamics, the movement is considered more significant. A larger volume transfers more weight to price changes, which is immediately reflected in a change in the indicator value. The difference between the maximum and minimum prices plays a significant role: the smaller the difference, the greater the A/D value. When the volume increases suddenly, it affects the movement of the instrument line.
A/D is a variation of the also popular On Balance Volume oscillator. Both of these tools confirm price changes by comparing price volumes. When A/D goes up, it indicates a buy, because... almost the entire volume comes from rising prices. When A/D falls, it indicates a sale, because... Almost all of the volume comes from price cuts. The discrepancy between Accumulation/Distribution and price will indicate in advance the upcoming price change: when the indicator rises and the price chart falls, then this is a reliable signal of a price reversal and vice versa.
You can see what A/D looks like on the MetaTrader 4 (MT4) platform in the image below. In addition, you can get acquainted with this oscillator in more detail.
What is the working principle of the A/D indicator?
A/D signals the dependence of price changes on volume, and is also a reliable tool for determining the financial forces that dominate the market at a particular moment. The larger the volume, the more significant the price dynamics; The more active participants are in the financial market, the greater the price change. If the graph is rising, buyers dominate; if the graph falls, sellers dominate the market. The name of the oscillator also reflects its scope of application:
“accumulation” is a market that is controlled by buyers ; “distribution” is a market that is controlled by sellers.
As a result, if in your work you need reliable information about the current market situation, refer to A/D data, this is its main task.
Indicator signals:
The indicator is used to confirm current trends :
- The upward trend is confirmed by growing indicator values;
- The downward trend is confirmed by falling indicator values.
If AD rises and at the same time prices on the chart rise, then there is an upward trend and you can buy CALL .
If the curve tends to go down, then you can buy PUT .
Signs of divergence and convergence :
- A sign of weakness in an uptrend - a price rise to a new high is not confirmed by the movement of the indicator line - this is a signal of a downward reversal.
- A sign of weakness in a downtrend - a price drop to a new low is not confirmed by the movement of the indicator line - this is a signal of an upward reversal.
How to calculate A/D
A/D(i) =((CLOSE(i) - LOW(i)) - (HIGH(i) - CLOSE(i)) * VOLUME(i) / (HIGH(i) - LOW(i)) + A /D(i-1) , where: A/D(i) is the value of the Accumulation/Distribution Indicator for the current bar; CLOSE(i) is the closing price of the bar; LOW(i) is the minimum price of the bar; HIGH(i) is the maximum price of the bar; VOLUME(i) — volume; A/D(i-1) — value of the Accumulation/Distribution Indicator for the previous bar.
Information taken from www.metatrader5.com
Is A/D installed on your platform?
The indicator is considered a classic binary options trading tool; it is integrated into almost all modern trading platforms; users of the MetaTrader 4 platform can also work with it without installation. A/D is a single curved line, which is located separately from the main price chart.
To add A/D to a price chart on the MetaTrader 4 platform, you must complete the following steps : click the “Insert” tab - select the “Indicators” tab - then “Volumes” - Accumulation/Distribution.
When adding to the main chart, a window with a set of standard settings will appear, click the “OK” button. A curved line of the oscillator will appear in a separate chart. You can start working.
If your platform does not have an A/D oscillator, you can download it here.
How to determine the beginning and end of trend phases?
The accumulation phase, as mentioned above, almost always occurs during a flat, so determining its beginning is not difficult. To determine the end of the accumulation phase, it is enough to find the moment when the price leaves the flat. At the same moment, the distribution phase begins:
You can easily determine the end of the distribution even using tick volumes (although it is better to use real volumes for this):
As you can see, during the trend and distribution, volumes grew, and at the end of the trend, when everything (or almost everything) was distributed, volumes began to fall and eventually became low again at the time of the new flat.
Using the indicator for binary options
The indicator has a lot of possibilities for using its data in trading. First of all, Accumulation Distribution is used to determine trading signals: divergence, convergence, as well as to fix trends for a specific period. Based on this data, supported by other technical analysis tools, you can place CALL and PUT bets and earn a good income.
The oscillator also indicates what the situation is in the market at the moment, who is dominant at the moment, sellers or buyers. Based on this information, you can draw conclusions and use them in trading. Traders use Accumulation Distribution along with other oscillators as an auxiliary tool, but sometimes it can be used alone.
Professional traders work more with the indicator, because it is necessary to pay attention to details that are not taken into account by option beginners:
1. When constructing a line, the indicator does not take into account “gaps” - price gaps that are converted at the beginning of trading sessions or after the publication of economic news. This distorts the indicator data and novice players forget about it. 2. Also, the curve often completely copies price movements, without showing divergence where other instruments indicate it (RSI, MACD, etc.). As a result, traders may miss the right moment to enter the market. To prevent this from happening, it is important to use A/D with other indicators.
Rules for concluding transactions (screenshots)
Trading when there is a signal to rise – prices are falling
In the images below you can see what the upward trend of the market looks like on the MetaTrader 4 platform:
Take advantage of the upward trend in price and place a CALL (up) bet with the Finmax broker. To do this, take the following steps :
Go to the broker's website finmaxbo.com and prepare an option, to do this, indicate in the system : 1. Type of asset 2. Option expiration date 3. Bet size 4. Forecast of quote movement: UP 5. Click the “buy” button and monitor the results of currency movements on the chart.
In the images below you can see what the downward trend of the market looks like on the MetaTrader 4 platform:
Take advantage of the downward trend in price and place a PUT (down) bet with the Finmax broker. To do this, take the following steps :
Go to the broker's website finmaxbo.com and prepare an option, to do this, indicate in the system : 1. Type of asset 2. Option expiration date 3. Bet size 4. Forecast of quote movement: DOWN 5. Click the “buy” button and monitor the results of currency movements on the chart.
Trading with a divergence signal
Divergence is the discrepancy between the indicator readings and the price. Divergence occurs in an uptrend , when the price goes in one direction and the indicator lines go in the other, this is a signal that the price movement will soon change:
Take advantage of divergence opportunities and place a bet with a trusted broker Finmax. To do this, take the following steps :
Go to the broker's website finmaxbo.com and prepare an option, to do this, indicate in the system : 1. Type of asset 2. Option expiration date 3. Bet size 4. Forecast of quote movement 5. Click the “buy” button and monitor the results of currency movements on the chart .
Trading with a convergence signal
Convergence is a divergence between indicator readings and price, which appears in a downtrend , when the price on the chart sets new highs, but the indicator does not, and warns of its completion:
Take advantage of convergence opportunities and place your bet with a trusted broker Finmax.
To do this, take the following steps :
Go to the broker's website finmaxbo.com and prepare an option, to do this, indicate in the system : 1. Type of asset 2. Option expiration date 3. Bet size 4. Quote movement forecast 5. Click the “buy” button and follow follow the results of currency movements on the chart.
MARKET WEAKNESSES VERSUS STRONGES
There is a rule of natural selection in the market - the strongest wins. Strong players are constantly looking for the weakest spots in the stock market crowd. If they do find them, they begin to use various manipulations, thus making a profit from this.
It’s worth remembering a simple principle: if you want to survive, don’t be in the crowd of weak ones . You constantly need to work like a strong player. This is important if you want to make a profit and not lose your deposit. After all, if a trader is in a crowd of weak ones, he automatically gives the opportunity to a strong player to withdraw his deposit.
However, speculators constantly go over to the side of the weak. Why? They are simply afraid to admit their mistakes. They hide their careless trading behind weak players, shifting all responsibility onto them.
Money management
No computer program or robot will guarantee effective management of your money. To ensure that you always have your personal funds, you need to work with them thoughtfully and carefully. Many novice players in the options market get involved in the race to win and completely forget about their funds, not subjecting them to any rules and wasting them in the very near future. Bottom line: you are out of money again and in order to continue trading, you will have to transfer funds again.
Professional traders, on the contrary, devote a lot of time to their capital and wise handling of it, because They know that stable good profits are possible only with a stable income. The rules of money management are a real right decision; they will become one reliable strategy that will bring positive results.
Money management is the rules for thoughtful management of money capital, which will allow you to save funds on deposit and increase them.
Minimum bets. Minimum funds
When participating in trading, bet the minimum amount on each specific option, but no more than 5% of your deposit. Trade lots that are lower than the funds on your deposit. Choose a trusted broker consciously and trust your funds only to the platform where you will be guaranteed the best income. By using your money carefully, you will keep it in your account, and in the event of a possible loss on your part, you can continue trading.
Minimum deposit
When participating in trades, start by carefully managing your account. Transfer the minimum amount of money to the deposit, determining for yourself the amount that you can spend on trading. Keep your funds in your account carefully, remember the possible risks of options trading and that if the trade is unsuccessful, you will need to continue playing.
Minimum assets
When participating in trading, start with the minimum and gradually master the market opportunities. Trading beginners often try their hand at all possible assets at once, which does not lead to a good outcome. It is worth remembering that a large number of trades means a large load on the deposit and a high percentage of the probability of losing all your funds at once.
Start trading with two or three assets, then after that. Once you get comfortable in the market, you will make informed decisions, and you can increase the number of assets. The desire to get big profits will always tempt you to take unconscious actions, and only having a money management strategy will help you save your money.
Minimum emotions
When participating in auctions, consider them to be serious work, in which thoughtfulness of actions, in-depth analysis and balanced decisions are important. When starting such work, turn off your emotions, do not play in a bad or excited state, this will interfere with concentration. Experienced market players are characterized by sobriety and clarity of action, remembering not only promising transactions, but also probable risks.
Perfectly disciplines the proven rule of three. As statistics show, three successful or failed trades are enough for a trader to turn off his mind and have a strong desire to return lost funds in case of failure, or to increase his winnings many times over. Thus, there is a big risk of being left without funds on deposit. Tell yourself strictly “stop” after three trades with any outcome, and you will not only save your capital and increase it, but also feel much more confident and successful.
"BULL" AND "BEAR" MARKET: FORMATION
The transition of assets from weak players to strong ones determines the future direction of the price. In order to understand how this all happens, you need to learn how to analyze supply and demand.
Examples of manipulations:
- How to cause panic in weak players? You just have to wait for the bad news. At such moments, the behavior of the majority is very predictable: a fall in the market means massive sales, during which supply increases quite significantly. Now try to answer the following questions: “What demand can absorb current volumes? Who is on the other side of the deal anyway?”
- Most inexperienced market participants often miss the formation of a bull market. Accordingly, their instinct of greed is triggered, however, it is too late. They are nervous, they think that the trend is passing by. Mass purchasing of trading instruments begins. This often happens at the extreme of a trend. Think about it, who benefits from being on the opposite side, selling assets?
You must understand that the real weakness of the market occurs only in growth. And the strength, accordingly, is in the fall.
Expiration
The concept of “expiration” in options trading is one of the important ones, because mainly directly affects success in trading. Without understanding expiration and not taking into account its role, it will be difficult for a trader to achieve a positive result in trading. By participating in a transaction, that is, making a forecast: whether the price will rise or fall, market players wait for the moment of expiration to see whether their prediction was correct and whether the funds on the deposit will be replenished.
Expiration (English Expiration, “expiration”) is the expiration date of the transaction, which, depending on the trader’s forecast, leads to a win or loss. It is worth remembering that successful trading is influenced by following a clear strategy, which includes money management, choosing oscillators, a reliable broker, and also using a specific expiration.
Types of options : Ultra-short options - 60 seconds - 5 minutes Short-term options - 15 minutes - several hours Medium-term options - from 6 hours - a day Long-term options - a day - several months.
Is it possible to extend the expiration of options? Can. Please note that not all brokers allow this.
Expiration rules:
1. Newcomers to options trading are advised to work with long expirations. This guarantees a reduction in risks and unpredictability of trading, like express expiration. 2. It is worth choosing a broker carefully and working where it is allowed to increase the expiration period. This ensures that losses and risks are minimized. 3. If you need quick income, you should participate in short-term (minute - several hours) expiration, but you need to remember the risks. 4. If you need a stable good income, it is worth participating in long-term expiration. If the outcome of the transaction is positive, a good income is guaranteed.
Expiration in A/D strategies
Strategy for signals to rise - lower prices
Short-term trading : acceptable; characterized by increased risks and unpredictability of trading outcomes; similar to a lottery; income is minimal. Recommended expiration : from 30 minutes to several hours; will allow you to calmly analyze the situation, use technical analysis, study indicator data and make the right bet; income is higher than with short-term trading. Long-term expiration : also recommended; will allow you not only to make a technical analysis, but also to predict market dynamics depending on the news, economic and political situation; income is higher.
Strategy for divergence and convergence signals
Short-term trading : allowed, can bring good results; At the same time, it is important to remember that this is a lottery and the result is unpredictable. Recommended expiration : from 5 minutes to 15 minutes; will allow not only the trend to develop, but also to show itself in full force; you can use strategies for binary options, study indicator data and draw conclusions based on them; average income. Expiration more than an hour : also recommended, it will allow you to analyze market dynamics in a calm environment and predict the outcome of trading based on macroeconomic analysis (news, economy, etc.); income is high.
AD Kroll Stop Strategy
The strategy involves 3 indicators: Stochastic, Chande Kroll Stop and Accumulation/Distribution. Stochastic helps to find out when the price will change direction during trading, the Accumulation/Distribution indicator reflects cash inflows and outflows, and the interesting and less common Chande Kroll Stop displays the volatility of the instrument.
This strategy is suitable for traders who trade on trend and impulse movements. And yet, despite the great risks, it is considered quite profitable and reliable that it is worth trying it out.
Recommended expiration : from 60 seconds to 15 minutes; will bring good results; It is worth remembering that short-term expirations are similar to a lottery and their result, despite the fact that the strategy works well, showing the behavior of trends, is unpredictable. Expiration for more than an hour : also recommended, it will allow you to study indicator data and draw a conclusion based on them; average income. Long-term expiration : not recommended; because instruments are dynamic and it is more difficult to monitor their behavior over a long period of time; predicting market behavior based on macroeconomic data in this case will not be easy.
"Elder's Three Screens" Strategy
A simple but very effective strategy by world famous trader Alexander Elder is popular in options and has become a classic. The strategy will need indicators: MACD, Stochastic and A/D. The first oscillator will show the trend, the second – the exact entry point, the third – the moment of buying the option.
Signals for buying a CALL option : MACD – in an uptrend; Stochastic - shows oversold conditions; A/D – the trend begins to grow. Signals for buying a PUT option : MACD – in a downward trend; Stochastic - shows overbought; A/D – the trend begins to fall.
Short-term trading : allowed, characterized by risks and unpredictability; income is minimal. Recommended expiration : from 5 minutes to several hours; will allow you to calmly analyze the situation and possibilities with the indicator; income is several times higher than with short-term trading. Long-term expiration : also recommended; will allow you not only to analyze price dynamics, but also to take advantage of macroeconomic data - news, economic and political situation, company statements; income is high.
To test in practice all the expiration options in the proposed strategies, use the platform of the reliable broker Finmax; just go to the website finmaxbo.com. The advantage of the platform is that you have a choice of expiration from 30 seconds to six months. Here you can not only check the strategies listed in the review, but also find your own comfortable one among them and get a good income.
