Investing & Trading

Williams AD Study

By Samantha Baltodano


TL;DR:

The Williams AD study identifies when accumulation and distribution are taking place for a security. This means, it identifies when the marketplace is controlled by buyers (accumulation) or by sellers (distribution). 


Accumulation and distribution are identified based on points of divergence between price and the Williams AD value.


If the price is moving downward making lower lows and the indicator line is not, Accumulation is occurring. 


If the price line is making higher highs but the indicator line fails to make higher highs, Distribution is taking place.



What Is Williams AD Study?

The Williams Accumulation Distribution study is used to determine whether the marketplace is controlled by buyers (accumulation) or by sellers (distribution). 


Its initial value is set to zero.


If the Close price exceeds the Close price one bar ago, a distance between the Close price and the True Range bottom is added to the indicator. 


If the Close price is less than the Close price one bar ago, a distance between the close and the True Range top is subtracted from the indicator. 


If the Close price is unchanged, the indicator is unchanged as well.


Let’s break this formula down.


Formula


To calculate Williams Accumulation Distribution:


Step 1. Calculate the True Range High and True Range Low values:


True Range High is the greater of:

  • Today’s High and 
  • Yesterday’s Closing price 


True Range Low is the lesser of:

  • Today’s Low and 
  • Yesterday’s Closing price


Step 2. Compare the Closing price for today to yesterday's Closing price:


If today’s Close price is greater than yesterday’s Close price:

  • Price Move [today] = Close [today] - True Range Low


If today’s Close price is less than yesterday’s Close price:

  • Price Move [today] = Close [today] - True Range High


If today’s Close price equals yesterday’s Close price:

  • Price Move [today] = zero


Step 3. Multiply the price move by volume:

  • AD [today] = Price Move [today] * Volume [today]


Step 4. Calculate the cumulative total:

  • Williams AD = AD [today] + Williams AD [yesterday]


Trade Signals


The study is traded on divergences. 


You might be wondering, “what does that mean?”


This means that your trade signals are given based on times of divergence. 


For example, if the price is moving downward making lower lows and the indicator line is not, this is a time of divergence. 


AKA the indicator line and the price line are not moving in the same direction.


In this case, this is a sign of a bullish reversal. Meaning there is likely to be an uptrend in price.


Price is likely heading into an upwards trend because Accumulation is occurring. This is the “A” in the Williams AD study.


Similarly, if the price line is making higher highs but the indicator line fails to make higher highs, a bearish reversal is likely to happen. AKA a downtrend is likely to occur in price.


This is because Distribution is taking place - the “D” in the Williams AD study.


Summary

  • The Williams AD study identifies the accumulation and distribution in price for a security. This means, it identifies when the marketplace is controlled by buyers (accumulation) or by sellers (distribution). 
  • Accumulation and distribution are identified based on points of divergence between price and the Williams AD value.

Williams AD is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.


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