Williams' Accumulation/Distribution
Type
Trend indicator
Short introduction
Larry Williams developed the Williams Accumulation / Distribution (WAD) to measure price changes. The aim of the indicator is to generate signals through divergences to the price trend.
Statement
As with other indicators, Williams not only refers to the prices of the current day to form the difference between the close and the daily low or high, but also includes the closing prices of the previous day in the calculation. In this way, a true high or true low is to be identified. The sum of the individual price changes is added to the previous day's value day by day. This results in an indicator curve that is open at the top and bottom and fluctuates around the zero line. If the close prices of the last two days are the same, then the indicator value does not change, because the value 0 is added to the old value.
Formula/calculation
if Ct > Ct-1 then X = C - TL
if Ct < Ct-1 then X = C - TH
if Ct = Ct-1 then X = 0
and
Williams A/D = (Xt + Xt-1 + Xt-s + ... + Xt-n+1)
where:
TL = "True Low", that is, today's low or the previous day's close, whichever is the smaller.
TH = "True High", that is, today's high or the previous day's close, whichever is greater.
Interpretation
The actual object of analysis in the WAD is the change in prices, which is measured by the indicator. There are two possible interpretations:
First, there is the search for divergences. A negative signal is generated when the underlying is still climbing new highs while the WAD is not climbing any new highs. A positive signal is generated when the actual price trend is still establishing new lows but the indicator is no longer establishing new lows.
On the other hand, there is the possibility to calculate an MA for the WAD and to use the intersection of the two lines as a signal generator. A buy signal is generated when the WAD indicator crosses its MA from bottom to top, a sell signal generated when the WAD crosses its MA from top to bottom.
Example: Chart with WAD
