Accumulation Distribution MT4 Indicator Signals
Created by Marc Chaikin
This MetaTrader 4 Indicator is used to assess the cumulative flow of money into and out of a Forex currency pair.
Originally used for stock trading, when it comes to stocks "volume" is the amount of shares traded in a particular stock, this volume is a direct reflection of the money that's coming into & out of a stock.
The basic principle behind AD is that volume(or money flow) is a leading MT4 Indicator of the price. (Volume precedes price).
In the forex market-Forex, there's no central exchange for trades as compared to stocks trades where there a central exchange for stocks, for example the NYSE- New York stocks exchange.
Since there no true measure of volume (actual money) that's flowing into & out of a currency market, brokers have come up with a substitute for the actual money volume, this substitute is referred to as "tick volume".
Tick volume is the measure of price changes (ticks) received by a online broker during a particular period/interval. The tick volume is incorporated by many brokers in their charting software.
Interpretation
This volume MT4 Indicator is used to determine if volume is increasing or decreasing as the price of a currency pair is rising or falling.
UpTrend
If the price of a forex pair is rising then the Ac Dc should also be rising. This displays that the price move is being supported by volumes & the move upwards has strength and is sustainable.
If on the other hand price is moving up and the volumes are not, the momentum behind this move is waning: this develops divergence between price and MT4 Indicator and warns of a possible move in opposite direction.
DownTrend
If the price of a currency pair is falling then the AD should also be falling. This displays that the price move is being supported by volumes & the move downwards has strength behind it.
If on the other hand price is moving down and the volumes are not, the momentum behind this move is waning: this develops divergence between price & AD & warns of a possible move in opposite direction.
MT4 Indicator and How to Generate Trade Signals
Shown Below is example of a chart and the MT4 Indicator explanation
From the chart above we can separate the chart into 3 parts, part A, B & C.
A - Upwards trend line on chart as well as on the Ac Dc
B - Downwards trendline on chart as well as on the Accumulation Distribution
C - Upward trend line on chart as well as on the Ac Dc
As long as the price and the MT4 Indicator are moving in the same direction then the price move has enough momentum to continue moving in that direction as shown above
Trend-Line Break
From the above chart we can see that once the trendline on the AD was broken then the price trend line was also broken.
Looking at the chart below we have added vertical lines to represent the points where the trend lines were broken, both on the price chart and the MT4 Indicator.
Comparing the trend lines in MetaTrader 4 Indicator and the price those of the AD were broken before those of the chart. This is because volume always precedes price.
Signals
Exit
Exit signals are generated when the trend line on the Ac Dc is broken. A trend line break on the MT4 Indicator warns of a possible reversal.
Entry
Once the trend line on the AD is broken it warns of a possible reversal in direction of the market.
However if we want to take a trade in the opposite direction it is always best to wait for a confirmation signal.
A confirmation signal is considered complete once both the MT4 Indicator and the price breaks both their trend lines.
Entry Signal Generated by Trend Reversal
