The quest to find where the largest institutional investors are investing vast sums of mutual fund and pension fund money leads many traders to search for accumulation/ distribution indicators.
When choosing an accumulation/ distribution indicator it is important to determine what data is used in the formula. Fortunately, this is relatively easy to do in your MetaStock charting program, which provides the formulas for many indicators. The problem with most of the accumulation/ distribution indicators, often called A/D indicators, not be confused with Advance/Decline indicators, is that the market structure has changed dramatically in just the past few years. Before 2005, no retail side trader had ever heard of High Frequency Trading, aka HFT, or Dark Pools. These massive market structure changes are evolving rapidly and so too must the indicators you use.
The Williams Accumulation/Distribution indicator is an example of one of the indicators that traditionally fall under the Accumulation/ Distribution category. However, this indicator uses only price and time in its formula. It was written on the premise that price action revealed where large lots and giant lots were buying or selling. And in the 1990s that was the case.
But in today’s market, tracking price surges only reveals HFT action and does not reveal Dark Pools, which are significantly more important Market Participants with massive capital resources. Chasing HFTs is never going to make you a happy prosperous trader. Getting in with the Dark Pools will help you succeed. Williams’ Accumulation/ Distribution indicator does not use the data needed to track the Dark Pools because they buy and sell without moving price. So this indicator alone will not give you the information you seek in terms of true accumulation/ distribution signals.
Tracking Dark Pool activity is where you must focus your attention, regardless of your trading style. Knowing where the largest funds are buying or selling gives you ample time to enter and prepare for huge HFT moves later on. Unfortunately, there are extremely few true accumulation/ distribution indicators, which must include volume in the formula to be a true accumulation/ distribution indicator in today’s market structure.
One true accumulation/ distribution indicator is the one we have created for the MetaStock Charting Program: TechniTrader Quiet Accumulation, aka TTQA.
With its ability to detect large-lot activity even when a stock’s price is not moving up or down, it is ideal for applying a Relational Analysis™, which reveals the active Market Participant groups in a stock through the patterns created due to how and when they buy or sell. The TechniTrader Quiet Accumulation indicator is one of the most powerful you can learn to use for identifying Dark Pool activity.
Relational Analysis using TTQA can expose contrarian patterns, Shift of Sentiment, Divergence or Convergence Patterns, just a few that help guide traders to when Dark Pools are moving in or out. It is useful for all trading styles and provides information that is not available to retail traders otherwise.
Institutions that use Dark Pools do not move price, so using Accumulation/ Distribution indicators that do not include volume are of no true value for this type of study. With the market structure changes and so much of the giant lots using off-the-exchange transactions during the day, TTQA and Relational Analysis are now more important than ever to learn.
Check out TechniTrader Quiet Accumulation in this video.
Martha Stokes CMT
Chartered Market Technician
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor & Developer of TechniTrader® Stock Market Courses
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