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Strategies & Market Trends : TA Science Projects & Experimental Indicators
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To: ftth who wrote (160)6/3/1998 10:53:00 PM
From: ftth  Read Replies (1) of 237
 
[Chaikin's A/D]

Chaikin's A/D is defined as:

SUM( {( (C-L)-(H-C) ) / (H-L)} * volume)

This indicator will contribute positive volume (accumulation) to the running total if we close in the upper half of the days range, and negative volume if we close in the lower half. It may not be obvious from looking at the equation, but that's what it amounts to.

If we close on the high, and the close was higher than yesterday's close, Chaikin's A/D contributes the same positive volume (ALL) as Granville's OBV.

Same concept holds for closing on the low, and below yesterday's close.

So Chaikin's A/D suffers from the same bias problems as OBV in that there will be days when the entire volume is added or subtracted from the sum. We know this isn't the case.

Therefore, Chaikin's A/D is biased and inconsistent. The inconsistency arises from the fact that the one-sided bias isn't introduced into every day's number, as it is for OBV. It is however, a quantifiable inconsistency in that we know which samples have this bias. That doesn't necessarily mean it's less reliable. Just pointing it out.

Being a running sum, the same potential problems as in the OBV case (relative magnitude of today's number compared to the running sum) hold. This is pretty easy to overcome, but we won't worry about that at the moment.

NEXT: William's A/D

dh
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