Williams Accumulation Distribution is usually traded on divergences. Distribution is taking place when price makes a new high and the indicator fails to exceed its previous high. When price makes a new low and the WAD fails to make a new low, accumulation is occurring.
The Williams’ Accumulation/ Distribution indicator, developed by Larry Williams aims to reflect whether the market is controlled by buyers (accumulation) or by sellers (distribution).
Prices making a new low along with the A/D indicator failing to reach a new low suggest that accumulation is taking place and creates a buy signal. Prices making a new high and the indicator failing to make new highs suggest distribution is taking place and creates a sell signal.
Williams’ AD is the accumulated sum of positive “accumulation” and negative “distributional” price movements. For example, if the current closing price is higher than the previous one, W/AD increases by the difference between the current closing price and the true minimum. If the current closing price is lower than the previous one, W/AD decreases by the difference between the current closing price and the true maximum.