Trading with Accumulation / Distribution (A/D) Indicator - Crypto Academy / S4W5 - Homework Post for @allbert

in SteemitCryptoAcademy2 months ago (edited)

QUESTION 1
Explain in your own words what the A/D indicator is and why it relates to volume.

The A/D Indicator

Definition

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The A/D indicator is a technical indicator which uses the volume and price of an asset in accessing if the asset is accumulated or distributed.
The A actually stands for Accumulation while the D stands for Distribution. In full we get it as Accumulation/Distribution Indicator.

Now explaining how it the indicator functions before going into how it is related to volume.

The A/D indicator locate the trend of a market through locating the accumulation and distributive phases. The accumulation phase is located just at the start of an uptrend showing that investors are preparing to buy that asset
While the distributive is located at the end of an uptrend indicating a downtrend showing that investors are selling off their holdings in that asset.

Going a little into the insight, the a/d indicator shows the divergence between the volume and price flow.
Explaining the divergence, it occurs when the prices makes an uptrens with the formation of higher lows while the indicator makes a downtrend with the formation of lower highs.

Relation to Volume

Now explaining the relation to volume, we see that when the volume increases which is solely because investors are buying the asset the A/D indicator will increase and when the volume decreases showing the investors are selling off their holdings, the A/D Indicator will start falling.

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QUESTION 2
Through some platforms, show the process of how to place the a/d indicator

Adding the A/D Indicator

I will illustrate the adding of the indicator with the usage of the trading view platform. I begin by logging into the platform and clicking on the indication tab

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From there I search **accumulation** and click on the first option which we can see from the screenshot below how it is added.

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QUESTION 3
Explain though an example the formula of the a/d indicator

Calculations of the A/D Indicator

Step One

  • Calculating the money flow multiplier.
    The MFM = [(close - low) – (high - close)] /( high – low)
    Where;
    MFM = money flow multiplier
    Close = closing price
    Low = low price for the period
    High = high price for the period.

Step two

  • Calculating the Money Flow Volume
    The Money Flow volume = [MFM * Period Volume]

Step 3

  • A/D
    The A/D = [ Previous A/D + CMFV]
    Where
    CMFV is current period money volume.


### Example calculations Close price = $16 Low price = $14 High price = $19 CMFV = 300 Previous Period AD = 450
Following the steps above, I begin by calculating the MFM The MFM = (close - low) – (high - close) / high - low (16 – 14) – (19 – 16) / 19 – 14 = -0.2

Calculating MFV
The Money Flow volume = [MFM * Period Volume]
-0.2 * 450 = - 90

Calculate the A/D
The A/D = Previous A/D + CMFV
300 + (-90)
= 210

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QUESTION 4
How is it possible to detect and confirm a trend through the a/d indicator?

Trends detection and confirmation with the A/D Indicator

Bullish Trend Formation

We can detect and confirm the trends in the for bullish formation when we have the prices of an asset making and uptrend while the indicator is making an uptrend as well with the formation of higher highs and higher lows.
This is shown in the screenshot below.

6DF47242-2793-4C59-8196-9D599F10CBE1.png

Bearish Trend

We can detect and confirm the trends for bearish formation when we have the prices of an asset making and downtrend while the indicator is making a downtrend as well with the formation of lower lows and lower highs
This is shown in the screenshot below.

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QUESTION 5
Through demo account, perform one trading operation using the a/d indicator only.

Buying the ETH Cryptocurrency

Trade Entry

For the trade entry, I will be using the divergence strategy for my trade entry. I will look at a formation with prices forming lower lows and lower highs while the indicator is forming a higher lows and higher highs.

I then connect the lower highs of the prices with a trend line and wait for a breakout of the trendline. I then wait for the prices to move a little further upward which I then enter the close of last candle. This shown in screenshot below.

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Exiting the Trade

I will set a stop loss point below the previous low point while the take profit level will be set using the stop loss point with a risk to reward ratio of 1:1

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Trade Declaration


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QUESTION 6
What other indicator can be used in conjunction with the a/d indicator. Justify, explain and test.

A/D Indicator and Relative Strength Index

We can use the A/D indicator in conjunction with the relative strength index. In trading it is particularly important to use at least 2 indicator to confirm a signal. This usage is particular important when we combine leading and lagging indicators together which is why I will be combining the relative strength index with the a/d indicator.
The relative strength index indicator identifies potential overbought and over sold regions while I will be confirming it with the A/D indicator. This is as shown in screenshot below.

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Conclusion

I have explained the a/d indicator and how it functions as it helps identifies the trend of the market. I have also demonstrated its calculation practically. Carrying a trade I have demonstrated a sell trade entry and declared the profits made in the trade.
In conjunction with rsi indicator I have demonstrated how to use the a/d indicator with the rsi to spot and confirm trends.

@allbert

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Hello @blaisebass1 Thank you for participating in Steemit Crypto Academy season 4 week 3.

CriteriaGrade
Q1 content0.75/1
Q2 content0.5/0.5
Q3 content1/2.5
Q4 content0.5/0.5
Q5 content0.5/2
Q6 content1.75/2.5
Post Presentation0.5/1
Total5.5/10

Homework task: 5.5

Feedback:

First of all I appreciate your effort in joining my class, however there are several aspects that I need to correct.

For example in question 1 you should have expanded a little more on the relationship of the indicator with volume. In question 3 the idea was that you should make an example to explain the formula of the indicator, preferably with real data.

The problem with question 5 is that I cannot validate it because you did not observe a noticeable real divergence.

Finally, in question 6 I would have liked you to have better justified your choice.
 2 months ago (edited)

Sir the power down has been revoked
Is the post still not eligible

33389C79-CD33-44A4-BA3C-F39557271426.jpeg

If You want to continue in the Academy I should recommend not to start the Power Down again.

Ok sir thank you

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