Stock Trading Using A/D Indicator

Accumulation/Distribution or A/D indicator can be used to trade stocks, currencies and futures. Know more about Accumulation/Distribution Indicator. It can be used to both confirm and predict price trends. A/D is a simple indicator to follow and to use and offers better results when used in conjunction with other indicators. A/D can be used for both short-term and long-term trading; short-term traders like day traders should use intraday charts.

1. Bullish/bearish signals are generated when A/D line shows corresponding rise/fall to the stock price movement. The greater the correlation the greater will be the reliability of the signal.
2. Buying/selling signals are considered weak when accumulation/depreciation indicator moves sidewise in a trendy market. In this case, usually the bullish/bearish trend does not have much buying/selling pressure.
3. Bullish signals are generated when A/D indicator shows a positive divergence from price movements; that is price is falling but A/D line is rising. The reliability of the signal increases with increase in degree of divergence and with longevity of the divergence.
4. Selling signals are generated when A/D indicator shows a negative divergence from price movements; that is price is rising but A/D line is dropping. Like bullish signals, reliability increases with divergence and its longevity.
5. When trading A/D divergence, most traders place stop-losses closer to recent low (for long positions) and to recent high (for short positions).

There are also some drawbacks with A/D indicator. 1) It does not consider price gaps and 2) It is difficult to track small price and volume changes, especially for day traders.

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