Reprinted from: http://www.alpari.co.uk/en/market-analysis-guide/technical-analysis/ad.html

Volume Indicators: Accumulation / Distribution (A/D)

Accumulation / Distribution indicator tracks the relationship between price and volume. The basic premise behind the indicator is that higher-volume moves in price are given greater emphasis than lower-volume moves (over the specified period of time).

If the bar close is near to its high, then part of volume is added to the Accumulation / Distribution indicator value (the closer the price the more percentage of volume is added). If the bar close is near its low, then part of volume is deducted from Accumulation / Distribution (the closer the price the more percentage of volume is deducted). If the close price is halfway between the bar high and low, then the value of the indicator is unchanged:

Accumulation / Distribution (A/D) indicator formula:

A/D = SUM (((CLOSE-LOW)-(HIGH-CLOSE))x VOLUME/(HIGH-LOW),N)

Where:

• CLOSE - a closing price;
• LOW - bar bottom;
• HIGH - bar top;
• N - the number of period which are used for calculations;
• SUM (...,N) - the amount for N periods.

Bearish convergence on Accumulation / Distribution (A/D) indicator

Accumulation / Distribution (A/D) indicator is similar in most aspects to the On Balance Volume (OBV) indicator but it is more complex. Accumulation / Distribution indicator signals are also similar to those of OBV indicator:

• if a new price high is confirmed by a new Accumulation / Distribution (A/D) indicator high this means that the bullish trend is strong;
• if a new price bottom is confirmed by a new Accumulation / Distribution (A/D) bottom this means that the bearish trend is strong;
• bullish divergence warns of the weakness of the uptrend;
• bearish convergence warns of the weakness of the downtrend;
• breakout of the trend line drawn on Accumulation / Distribution (A/D) indicator warns of the high possibility of the breakout of the trend line on the price chart.

In order to add Accumulation / Distribution (A/D) indicator to the chart in MetaTrader 4 use the "Insert->Indicators->Volumes->Accumulation Distribution" menu sequence.