The Accumulation/Distribution oscillator was developed in 1979 by Larry Williams, one of the most successful commodity traders of the past 50 years. More commonly known as the A/D oscillator, this momentum indicator is used to measure the strength or weakness of a particular stock, commodity or cryptocurrency. Williams believed that in order to become a successful trader, it was imperative to accurately determine the underlying trend of the market. Williams developed the accumulation/distribution indicator to accomplish this objective.
During the past few years, the A/D oscillator has worked incredibly well with Bitcoin futures. This momentum oscillator has managed to capture the majority of the big moves in BTC. Let’s discuss the specific trading rules of the A/D oscillator. Please review the table.
The trading rules are very simple. For example, let’s assume Jane begins trading the A/D oscillator on 3 December. The A/D reading always begins at 10,000. The next trading day is 6 December. The price of Bitcoin increases 550 points. The new A/D reading is 10,550. On 7 December, BTC rallies 1,166 points. Therefore, the A/D reading increases to 11,716. As you can see from the table, the A/D reading is calculated by adding or subtracting the net change of the Bitcoin closing price on a daily basis.
· Buy Signal A/D reading 12,000
· Sell Signal A/D reading 8,000
As you can see from the table, the A/D reading dropped below 8,000 on 15 December. The daily low on 15 December is 45,087. Jane places an order to sell BTC futures @ 45,087 on 16 December. Jane’s sell order is elected. Therefore, she is short BTC futures. Her protective stop is the daily high from 15 December, which is 46,318. Jane’s profit target is the low on the day of entry. She entered the trade on 16 December. Therefore, Jane’s profit target is 44,009.
On 17 December, BTC futures fell below 44,009. Jane liquidated her short position with a profit of 1,078 points.
A/D Oscillator Trading Instructions
· Sell signal is triggered @ 45,087 on 16 December
· Protective stop is 46,318
· Profit target is 44,009
· Profit target was achieved on 17 December
The A/D oscillator is a good trading system because it always follows the underlying trend of the market. The system manages to capture the big moves that occur in Bitcoin futures. The losing trades are liquidated with a small loss based on the protective stop. The A/D oscillator will continue to generate consistent profits as long as the price of Bitcoin remains volatile.
Keys To Successful Trading
My trading career began in 1989 with commodity futures. I added BTC in 2017. Based on my 33 years of trading, the most important attribute to becoming a successful trader is to develop a good trading plan. According to many investment surveys, 80% of all traders lose money. The majority of these traders lose money because they have no trading plan or investment strategy. Generally speaking, traders and investors rarely follow a rules-based trading plan on a consistent basis. Unfortunately, most traders lack the discipline and patience to use a specific strategy for more than a few weeks. This explains the high failure rate.
Personally, I have managed to generate fairly consistent results during the past few decades because I use a simple trend-following strategy. Essentially, I have been using the same strategy since 1989. For the purpose of this article, the specific strategy is not important. Instead, the important thing to remember is that the strategy is consistently used on a regular basis. Based on my experience, this is the key to becoming a successful trader. My suggestion is to find a good trading method and use the method on a regular basis for several consecutive months.
Many traders are under the impression that it’s difficult to develop a profitable trading method. This is not true. Research has shown that many different strategies are available for successful trading in stocks, commodities, forex and crypto. The majority of these strategies are linked to trend-following approaches. The specific methodology is the least important aspect of becoming a successful speculator. Instead, the most important characteristic is to develop a daily trading routine and follow the same routine for a very long time. “Patience and discipline” are the keys to successful trading.