Williams Accumulation Distribution – Rules, Strategy, Settings, Returns

Investing smart means using the right tools to find an edge in the market and timing your entry accordingly — one interesting tool that can help with this is the Williams Accumulation Distribution. What do you know about this indicator?

The Williams Accumulation Distribution is a cumulative indicator developed by Larry Williams to measure the buying (accumulation) or selling (distribution) pressure in the market. It establishes accumulation when the Close of the current bar is greater than the Close of the preceding bar and distribution when the Close of the current bar is less than that of the preceding bar.

In this post, we will take a look at most of the questions you may have about the Williams Accumulation Distribution: what it is, how it works, and how you can improve your trading strategies with it. Let’s dive in!

Key takeaways

• The Williams Accumulation Distribution indicator was developed by Larry Williams to measure buying (accumulation) or selling (distribution) pressure in the market.Unlike the traditional Accumulation Distribution indicator, it does not incorporate volume in its calculation.
• Accumulation is indicated when the current bar’s Close is higher than the Close of the previous bar.
• Distribution is indicated when the current bar’s Close is lower than the Close of the previous bar.
• Accumulation is calculated as the difference between the current bar’s Close and the True Low.
• Distribution is calculated as the difference between the current bar’s Close and the True High.The indicator is cumulative: each new value is added to the previous value.
• Positive values (accumulation) make the indicator rise.
• Negative values (distribution) make the indicator fall.
• If the current bar’s Close is the same as the previous bar’s Close, the indicator’s value remains unchanged.
• More indicators are available if you click here: best technical trading indicators.

What is Williams Accumulation Distribution?

The Williams Accumulation Distribution is a cumulative indicator developed by Larry Williams to measure the buying (accumulation) or selling (distribution) pressure in the market. Unlike the traditional Accumulation Distribution indicator, the Williams Accumulation Distribution does not include volume in its calculation.

The indicator establishes accumulation when the current bar’s Close is greater than the Close of the preceding bar and distribution when the current bar’s Close is less than that of the preceding bar. It measures accumulation value based on the difference between the Close of the current bar and the True Low. Similarly, it measures the distribution value based on the difference between the Close of the current bar and the True High.

As a cumulative indicator, the Williams Accumulation Distribution adds the current value to the previous value. Thus, positive values (accumulation) make the indicator to rise, whereas negative values (distribution) make the indicator to fall. If the current bar’s Close is the same as the previous bar’s close, the indicator’s value stays unchanged.

Williams Distribution trading strategy – rules, settings, and returns

A backtested strategy is coming shortly.

How does the Williams Accumulation Distribution indicator work?

The Williams Accumulation Distribution works as a measure of accumulation and distribution in the market. It checks whether there is accumulation or distribution in the market and then measures the current value and adds to the previous value to get a cumulative value up to that point.

There is accumulation if the close of the current bar is greater than the previous bar’s close, and the value is measured by subtracting the True Range Low from the current bar’s close, giving rise to a positive value. Distribution is present if the close of the current bar is less than the previous bar’s close, and its value is measured by subtracting the True Range High from the current bar’s close, giving rise to a negative value.

These values are added to the previous value to get the cumulative value. If the current close is the same as the previous close, there is neither accumulation nor distribution, so the indicator value remains the same as the previous period.

However, the indicator’s signals are not based on how high or low the cumulative value (indicator line) is. Rather, it is based on the divergence of the indicator from the price swings — when the price makes a lower low and the indicator does not make a new low, accumulation is going on, and when the price makes a higher high and the indicator fails to make a new high, distribution is present.

Who created the Williams Accumulation Distribution?

The Williams Accumulation Distribution was created by Larry Williams, a renowned commodity futures trader, author, and traders’ teacher. He described his version of the accumulation distribution tool in one of his books, as well as in his seminars. Here’s how he explained the indicator in his 1995 seminar in Las Vegas:

“My formula is to first ask if the price closed up or down for the day. If up. I will then subtract the low from the close and add this amount of “accumulation” into a cumulative line or index. If prices close down for the day, I will subtract the close from the high and subtract this value from the cumulative index. By doing this you develop a measure of the buying and selling going on in the market. I look for divergence between price and the A/D.

If the price is up and not matched by A/D, a sell is coming. If the price breaks to a new low and A/D does not, then a buy is coming. NOTE: This can be used as a selection tool as well as a timing tool.”

Why is Williams Accumulation Distribution important for traders?

The Williams Accumulation Distribution is important for traders because it helps them ascertain whether there is accumulation or distribution in the market so they know what to anticipate in the market. This is especially true if the market is in tight range consolidation and it’s expected to break out from any side.

When the price makes a lower low and the indicator does not make a new low, accumulation is likely going on, so a bullish breakout and trend are anticipated. On the other hand, when the price makes a higher high and the indicator fails to make a new high, distribution is likely occurring. So, a bearish breakout is anticipated.

What does the Williams Accumulation Distribution measure?

The Williams Accumulation Distribution measures the current period’s True Price Move — that is, the difference between the current period’s close and the True Range Low or High, as the case may be. It uses this true price move to estimate accumulation if the close is greater than the previous period’s close or distribution if the close is less than the previous period’s close.

In the case of accumulation, the True Range Low is subtracted from the current close, while for distribution, the True Range High is subtracted from the current close.

How can Williams Accumulation Distribution help identify trends?

Williams Accumulation Distribution can help identify trends by suggesting the type of trend to anticipate in the market. For instance, if the market is in tight-range consolidation, it’s expected to break out from any side. The Williams Accumulation Distribution can help identify which side the breakout might occur by showing whether there is accumulation or distribution in the market,

Accumulation is likely taking place if the price makes a lower low but the indicator does not make a new low. In this case, a bullish trend is anticipated. Distribution is likely going on if the price makes a higher high and the indicator fails to make a new high. In this situation, a bearish trend is anticipated.

What are the key components of Williams Accumulation Distribution?

The key components of Williams Accumulation Distribution include the following:

• Current period’s close: This is the close of the current price bar. It is used to check whether there is accumulation or distribution and calculate the true price move.
• Previous period’s close: It is the close of the previous price bar.
• The True Range High: This refers to whichever is greater between the previous period’s close and the current period’s high.
• The True Range Low: This refers to whichever is lower between the previous period’s close and the current period’s low.
• The True Price Move: This is the difference between the current period’s close and the True Range High/Low. It is the measure of the accumulation/distribution value — accumulation value if the value is positive and distribution value if the value is negative.

How does price volume impact Williams Accumulation Distribution?

The price volume does not impact Williams Accumulation Distribution, as the indicator is purely based on price movement alone. While volume data is a major component of the traditional Accumulation Distribution Indicator, it is not a component of the Williams Accumulation Distribution.

However, some people include volume in their customized version of the Williams Accumulation Distribution by multiplying the True Price Move by the current period’s volume before adding to the previous AD value to get the cumulative sum.

What is the formula for Williams Accumulation Distribution?

The formula for Williams Accumulation Distribution is given as follows:

If CPC > PPC: A/D Value = CPC — TRL

If CPC < PPC: A/D Value = CPC — TRH

If CPC = PPC: A/D Value = 0

Williams Accumulation Distribution (WAD) = A/D Value + WAD_previous

Where:

CPC = Current Period’s Close

PPC = Preceding Period’s Close

TRL = True Range Low

TRH = True Range High

A/D Value = Current period’s accumulation/distribution value

WAD_previous = Previous Period’s Williams Accumulation Distribution

How do you calculate Williams Accumulation Distribution?

To calculate Williams Accumulation Distribution, you should follow these steps:

1. Find the True Range High and True Range Low: The True Range High is whichever is greater between the previous period’s close and the current period’s high, while the True Range Low is whichever is lower between the previous period’s close and the current period’s low.
2. Compare the Current Period’s Closing price to the Preceding Period’s Closing price and calculate the accumulation distribution value accordingly: If the current period’s closing price is higher than the preceding period’s closing price, subtract the True Range Low from the current period’s close to obtain the accumulation/distribution value. If the current period’s closing price is lower than the preceding period’s closing price, subtract the True Range High from the current period’s close. If the current period’s closing price equals the preceding period’s closing price, the accumulation/distribution value is zero.
3. Calculate the current Williams Accumulation Distribution: You get this by adding the current accumulation/distribution value to the indicator’s previous value to get the cumulative total.

How do you interpret Williams Accumulation Distribution values?

To interpret Williams Accumulation Distribution values, you check whether the values are rising or falling. When the values are rising, it means the A/D values being added are positive, which implies accumulation. Conversely, when the values are falling, it means the A/D values being added are negative, which implies distribution.

However, the actual signal recommended by the creator is the divergence of the indicator swings from the price swings. Thus, when, in a consolidating market following a downtrend, the price makes a lower low but the indicator does not make a new low, accumulation is going on. Watch out for a bullish move. Likewise, if, following an uptrend, the market is consolidating and the price makes a higher high but the indicator fails to make a new high, distribution is present.

What does a rising Williams Accumulation Distribution indicate?

A rising Williams Accumulation Distribution indicates that accumulation is taking place. Here is how: when the indicator is rising, it means that the A/D values being added are positive — in other words, the current closing price is higher than the previous one and the True Range Low is what was subtracted from the current closing price, which made the A/D value positive.

Adding a positive A/D value to the previous WAD means a higher WAD.

What does a falling Williams Accumulation Distribution suggest?

A falling Williams Accumulation Distribution indicates that distribution is going on, and here is how: When the indicator is falling, it means that the A/D values being added are negative. In other words, the current closing price is lower than the previous one, so the True Range High is what was subtracted from the current closing price, which made the A/D value negative. Of course, adding a negative A/D value to the previous WAD means a lower WAD.

How does Williams Accumulation Distribution differ from other volume indicators?

Williams Accumulation Distribution differs from other volume indicators in that it is not originally a volume indicator. The volume data is not required in William’s version of Accumulation Distribution. The indicator is based purely on price movements.

It compares the current closing price to the previous period’s closing price and then calculates the A/D value by subtracting the True Range High or Low from the current closing price. This A/D value is then added to the previous period’s indicator’s value to get the cumulative total for the current period.

Can Williams Accumulation Distribution signal buying opportunities?

Yes, Williams Accumulation Distribution can signal buying opportunities. According to Larry Williams, the divergence of the indicator from the price swings can be a timing tool for trade entries.

For instance, if the market is consolidating following a downtrend and the price makes a lower low but the indicator does not make a new low, it means that accumulation is going on. This could be a signal for a buying opportunity in the market.

How can Williams Accumulation Distribution signal selling opportunities?

Yes, Williams Accumulation Distribution can signal selling opportunities. The divergence of the indicator’s swings from the price swings can be a timing tool for trade entries. For example, if the market is consolidating following an uptrend and the price makes a higher high but the indicator does not make a new high, it means that distribution is taking place. This could be a signal for a selling opportunity in the market.

How do traders use Williams Accumulation Distribution with other indicators?

Traders use Williams Accumulation Distribution with other indicators by combining it with indicators that complement it. For example, they can combine it with a trend indicator, such as a moving average, which can help them identify the trend. Some momentum oscillators like the RSI or stochastic may also be useful for short-term momentum trades.

Combining it with a volume indicator might yield a better result.

What timeframes are best for Williams Accumulation Distribution analysis?

The timeframes that are best for Williams Accumulation Distribution analysis will depend on your trading style and the market you’re trading. If you are a day trader, intraday timeframes, such as the hourly, 30-minute, and 15-minute timeframes are more suitable for your style of trading.

A swing trader will find the 4-hourly and daily timeframes better suited for their trading style.

Is Williams Accumulation Distribution effective in volatile markets?

Whether Williams Accumulation Distribution is effective in volatile markets will depend on the nature of the markets and how volatile they are. Increased volatility in markets that are trending in one direction means bigger price strides, while in range-bound markets, it could mean non-directional spikes.

The Williams Accumulation Distribution will be more effective in trending volatile markets than in range-bound spiking markets.

Can Williams Accumulation Distribution predict market reversals?

Yes, Williams Accumulation Distribution may be able to predict market reversals, especially short-term reversals. It could do that through its divergence signals. A bullish divergence occurs when the price makes a lower low and the indicator does not make a new low and could signal an upward reversal — at least in the short term.

A bearish divergence occurs when the price makes a higher high and the indicator fails to make a new high, which could signal a downward reversal.

What are the common mistakes using Williams Accumulation Distribution?

The common mistakes using Williams Accumulation Distribution include:

• Using the indicator without understanding how it works
• Not creating a reliable trading strategy with clear entry and exit rules
• Using the indicator alone as a standalone strategy
• Trading without specifying your risk management parameters

How can Williams Accumulation Distribution support trend confirmation?

Williams Accumulation Distribution can support trend confirmation if the price swings and the indicator swings are in phase. For example, if the price is in an uptrend, making higher highs and higher lows, the indicator should also be in an uptrend with higher highs and lows — this shows that the trend is likely still healthy.

What are the limitations of Williams Accumulation Distribution?

The limitations of Williams Accumulation Distribution include the following:

• The indicator does not include volume in its calculations, so it does not fully measure the buying or selling pressure in the market.
• It cannot be used alone as a trading strategy on its own — it must be combined with other indicators or price action analysis that complements it.

How can beginners start using Williams Accumulation Distribution?

For beginners to start using Williams Accumulation Distribution, they have to first learn how the indicator works so they can use it to create suitable trading strategies. After learning, they can open a demo account, create strategies with the indicator, backtest the strategies, and practice them for as long as they need.

Is Williams Accumulation Distribution useful for long-term or short-term trading?

Whether Williams Accumulation Distribution is useful for long-term or short-term trading will depend on the trader’s strategy, trading style, and timeframe where it is applied. The indicator can be applied to any trading timeframe if there is a strategy with an edge.

With a suitable day trading strategy on the 15-minute timeframe, for example, the indicator can be used for short-term trading. Likewise, if there is a profitable position trading strategy on the weekly timeframe, the indicator can be used for long-term trading.