What are some effective ways to use Williams accumulation distribution (WAD) in technical analysis?

1 What is WAD?

WAD is calculated by adding the difference between the closing price and the true low to the previous value of WAD, or subtracting the difference between the closing price and the true high from the previous value of WAD. The true high is the higher of the current high or the previous close, and the true low is the lower of the current low or the previous close. WAD is a cumulative indicator, meaning that it reflects the net accumulation or distribution of the asset over time. A rising WAD indicates that buyers are dominating the market, while a falling WAD indicates that sellers are dominating the market.

2 How to use WAD to identify trends?

One of the simplest ways to use WAD is to identify the direction and strength of the trend. A trend is a sustained movement of the price in one direction, and it can be classified as bullish, bearish, or sideways. To use WAD to identify trends, you can plot a moving average (MA) of WAD on the same chart as the price, and look for the alignment and slope of both lines. If WAD and its MA are both rising and above zero, it indicates a strong bullish trend. If WAD and its MA are both falling and below zero, it indicates a strong bearish trend. If WAD and its MA are oscillating around zero, it indicates a sideways trend.

3 How to use WAD to spot divergences?

Another way to use WAD is to spot divergences between the price and the indicator. A divergence occurs when the price and the indicator move in opposite directions, signaling a potential reversal or slowdown of the trend. There are two types of divergences: bullish and bearish. A bullish divergence occurs when the price makes a lower low, but WAD makes a higher low, indicating that the selling pressure is weakening and the buyers are gaining momentum. A bearish divergence occurs when the price makes a higher high, but WAD makes a lower high, indicating that the buying pressure is weakening and the sellers are gaining momentum.

4 How to use WAD to generate trading signals?

A third way to use WAD is to generate trading signals based on the crossover of WAD and its MA. A crossover occurs when WAD crosses above or below its MA, indicating a change in the direction and strength of the trend. A bullish crossover occurs when WAD crosses above its MA, signaling a possible entry point for a long position. A bearish crossover occurs when WAD crosses below its MA, signaling a possible entry point for a short position. However, crossovers are not always reliable, and they should be confirmed by other indicators and factors, such as the price action, the volume, and the support and resistance levels.

5 What are the advantages and disadvantages of WAD?

WAD is a useful indicator that can help you analyze the market sentiment and the supply and demand dynamics of an asset. It can help identify trends, spot divergences, and generate trading signals. However, WAD also has some limitations and drawbacks that you should be aware of. Advantages include its ease of calculation and interpretation, as well as its ability to be applied to any time frame and asset. WAD is also a leading indicator, meaning it can anticipate price movements before they occur. On the other hand, WAD can be prone to false signals in volatile and choppy markets, where the price makes frequent large swings. It can also lag behind the price in fast and strong trends, where the price outpaces the indicator. Additionally, WAD can be affected by scaling and smoothing of the chart, which can alter its appearance and accuracy.