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The Accumulation/Distribution or A/D indicator tries to determine whether the current security is controlled by buyers (accumulation) or by sellers (distribution). It acts as a leading indicator and it is calculated by summing over a specific number of bars, a formula that uses the close, high, low and volume prices. The more volume there is for a specific bar and the more the price change will contribute to the value of the indicator.
Trading signals are given by the divergence between the indicator time-series and the close price time-series. A bullish signal occurs when there is a bullish divergence; that is, the close price is making a new low while the indicator fails to make a new low. A bearish signal occurs when there is a bearish divergence; the close price is making a new high while the indicator fails to make a new high.
You can use the following SEARCHFOR function to detect bearish divergences between the accumulation/distribution indicator and the close price.
acc = AccumulationDistribution(30);
var2 = SEARCHFOR acc < 0.9 * _max(acc) && close >= _max(close) AFTER 30 WITHIN 100;
The SEARCHFOR formula tells the application to search for instances (within the last 100 bars; rejects instances that last less than 31 bars) where the close price is at its highest value and the A/D indicator is below 90% of its highest value.
This is just an example; there are many other ways to detect divergences.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
