Accumulation/Distribution

Discussion in 'Forex - Currencies Forums' started by Daniela-TFC, Sep 30, 2014.

  1. Daniela-TFC

    Daniela-TFC Active Member

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    This indicator is a momentum indicator which identifies when investors are accumulating in a downtrend or distributing in an uptrend. Consecutive days of high volume in such moves can confirm whether the trader can take a position, but also other indicators and chart formations must be used for pinpointing a possibly appropriate time to open the position.

    This indicator uses the following formula:

    Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period’s volume


    [​IMG]

    When the indicator falls, it means a distribution (selling), because most of the volume has happened during the downward movement. So we can conclude that this accumulation/distribution gives a direction to volume and is especially suitable for taking a position against the general trend. Turning points are very close and also a money management strategy must be applied for asuccessful trading.In the example in the figure above we can see that there is a bearish divergence and the distribution movement is confirmed by the accumulation/distribution indicator. Even though there is an uptrend, we can see that the volume is happening when shorting the currency pair. The indicator can bring up also wrong signals and we should be very cautious about this and preferably watch out for support/resistance levels to confirm our opening time.When the Accumulation/Distribution indicator grows, it means there is a buying of that currency pair, because the most volume is happening in long positions.

    Conclusion

    We don’t need any new daily highs for accumulations neither any new lows for distribution. The volume is important when taking short positions and the indicator shows this exact volume. In the figure I exemplified that in an uptrend with new highs there is a distribution and selling of a currency pair and most people would take a wrong stand and suppose that this is bullish. The result would be taking a wrong bullish position on the view that there is some other formation or taking out of a resistance level.
     
    Last edited by a moderator: Jul 8, 2016

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