Williams' Accumulation/Distribution (WAD)

Larry Williams' Williams' Accumulation/Distribution (WAD) is not to be confused with Marc Chaikin's Accumulation/Distribution Line (ADL).

What is Williams' Accumulation/Distribution?

WAD

Williams' Accumulation/Distribution (WAD) is a leading market strength indicator that was developed by Larry Williams in 1972 for trading stocks but it can also be applied to futures and other types of securities. Williams' Accumulation/Distribution (WAD) is used to measure the buying and selling pressure of a security and uses divergences to produce trading signals. WAD takes price and volume into account. It also takes into account the True Range High, which is the highest of the current high and the previous close, the True Range Low, which is the lowest of the current low and the previous close, as well as the relationship between the current close and the previous close.

How is WAD calculated?

Williams' Accumulation/Distribution (WAD) is calculated in a number of steps. First, the True Range High and True Range Low are calculated:

  • True Range High = highest of the current high and the previous close
  • True Range Low = lowest of the current low and the previous close

Next, the Price Move is calculated, taking into account current close and the previous close:

  • If the current close is higher than the previous close, Price Move = Current Close - True Range Low
  • If the current close is lower than the previous close, Price Move = Current Close - True Range High
  • If the current close is equal to the previous close, Price Move = zero

Next, the current Accumulation/Distribution (AD) is calculated by multiplying the Price Move by volume: Current AD = Price Move x Volume

Finally, the cumulative WAD is calculated by adding the current Accumulation/Distribution (AD) to the previous WAD: WAD = Previous WAD + current AD

How is WAD used?

Williams' Accumulation/Distribution provides trading signals based on divergences.

  • Bearish divergence occurs when price makes a new high but the WAD fails to exceed its previous high. This indicates selling pressure, which means that distribution is taking place.
  • Bullish divergence occurs when price makes a new low but the WAD does not. This indicates buying pressure, which means that accumulation is taking place.

When bullish divergence occurs between the price action and the WAD indicator, and accumulation is implied, an uptrend would be anticipated. A trader would thus look for an opportunity to go long in the market. When bearish divergence occurs between the price action and the WAD indicator, and distribution is implied, an downtrend would be anticipated. A trader would thus look for an opportunity to short the market.