Blockchain and Cryptocurrency Intermediate - The A/D Indicator

The Accumulation and Distribution Indicator which is commonly known as the A/D indicator, is one of the top technical indicators and has proven to be a really powerful volume-based indicator when it comes to determining the trends of a cryptocurrency market by making use of volume and price in its calculation. A/D Indicator is basically a volume-based indicator that determines if a particular cryptocurrency is accumulated or distributed based on volume. The cryptocurrency market comprises of cycles. If a cryptocurrency is being accumulated, it means that the buying pressure is high, this is due to increase in demand which in turn increases the buy volume and also increases the price. On the other hand, if the cryptocurrency is being distributed, it means that the selling pressure is high due to increase in supply which in turn increases the sell volume and also decreases the price.

A/D indicator on the AAVE/USDT Chart

The A/D indicator relates to volume because it makes use of volume in its calculation to determine accumulation and distribution based on the volume and price action. It does this by taking into account the close price and then multiplying the close price by volume. Also, it identifies divergences between the price of a particular cryptocurrency and the volume flow. With this, it provides a string indication of the strength of a trend in the market. If there is an increase in price but the A/D indicator oscillator line is falling, it can be an indication that the buying pressure isn’t strong enough to maintain the upward price movement which could see the price reverse downwards. Also, if there is a decrease in price, but the A/D indicator oscillator line is rising, it can be an indication that the selling pressure isn’t strong enough to continue pushing the price down, which could see the price reverse upwards. From the BNB chart below, we can see that the A/D indicator has indicated that the market is in accumulation phase which as clearly seen on the price movement.

BNB/USDT Chart