Well, someone just forced my hand. Someone from Grapevine, Texas. We will talk about Volume next.
I think you have missed the difference between accumulation and distribution based on volume. The lack of volume from the dates posted above does not denote distribution or accumulation. The area of the chart that is missing is 7/25 to 8/8 is a good example of distribution. From 9/12 to 10/15 is accumulation. Any certified T/A person would easily see this in the volume you are discussing and would consider this a mild pull back before a continuation. Mild pull backs are healthy but not an indication of direction until accumulation or distribution comes in to start the next move or leg.
Anonymous
Grapevine Texas
To answer the comment. I believe I know what accumulation is and clearly what distribution is. However, since the anonymous person eludes that they are a certified T/A person. “Any certified T/A person would easily “.
Volume
Everyday people note what the volume that traded in the market is or was. Volume is basically all the trades for the day. It can be further subdivided to 2 components. Advancers vs Decliners. Buyers vs Sellers. When you talk about advancer’s, these are buy orders. When you talk about decliner’s, these are generally sell orders. Lets keep it that simple. I think many people can go on about it with tons or rhetoric. In simple terms, overall volume consist of buy and sell.
Volume when it comes to momentum, is about the cumulative effect of the buying and selling that goes on in the market. Cumulative means that all the buying that occurred will contribute to the out look of what is already in the history of the stock or market as well as all the selling. If for instance, the stock has experienced primarily mainly buying in its history, then the overall volume of the said stock consist primarily buy volume.
Why is volume so interesting? Why do we even talk about it? Because it is what makes up the overall momentum. It also helps define the trend. It is what is being offset to produce periods of accumulation or distribution. How so?
If the stock or market experiences primarily, buying, it doesn’t really mean that there were no selling. It just means that the overall volume were buy orders. And of course you will have sell orders. Why? Because there will be people who will sell to take profits. Some people are also trying to short it. Over time, if the amount of buying tapers off, the cumulative volume that already has taken place in the stock/market that happens to be selling, will offset the cumulative buying volume to make the stock go down. It is a mathematical process.
So let us talk about this Accumulation and Distribution.
Accumulation StockCharts.com Definition
The act of buying more shares of a security without causing the price to increase significantly. After a decline, a stock may start to base and trade sideways for an extended period. While this base builds, well-informed traders and investors may seek to establish or increase existing long positions. In that case, the stock is said to have come under accumulation.
Ah, this is one of the first blog entries I wrote. And so our reader said thus: “From 9/12 to 10/15 is accumulation.“
Well let us see the chart for what our reader was referring to.
The first chart is the weekly. And the 2nd chart is the 4hr.
First lets look at his weekly. The leg going down at 9/12 to the pop is his (just to help me out, i’m gonna give our person a male gender, I’m sorry if you are actually female, no offence.) accumulation. Does it fit the definition?
“The act of buying more shares of a security without causing the price to increase significantly. After a decline…”
Nope. Because it went down first then popped. The price did change significantly from the said period. There is accumulation that occurred there at the 10/3 area, but the strength to push the price up all the way to 10/24 high actually the result of the accumulation from the tail end of week 8/1 to about 10/10.
Is this not what accumulation should look like based on the definition above? So what you have from 8/1 to 10/10 is the sideways movement that is by definition of what accumulation is. And then the resulting pop. Now this pop in the weekly is not a strong bullish accumulation. This is where some people will say there is a “hidden” divergence. Go read my blog entry for that. I’m not going over that again.
Now let us discuss what happened in 10/3 for the pop. As I’ve said, the pop that perhaps our reader suggested, is not the pop responsible for the larger move that occurred overall. The momentum is the product of the accumulation as discussed above. What is responsible then 10/3 pop?
Well there are 2 factors here. 2 time frames.
- The weekly trend built up by the accumulation we noted above wanted to pop this up.
- The shorter time frame (which we will see next) shows you the pop that occurred on 10/3. Is also in response to the larger time frame trend. Higher the time frame the bigger the move. 8/10-10/10 is the wide base, that my chart expert teacher, Asbucky, taught me, will be followed by wide space. The big pop up the the start of the leg down of the previous high at 7/4. 1st test pop, ergo, we pull back.
Now this is a 2 stage accumulation with a new low produced. The accumulation was built up by the buying that occurred from 9/22 to 10/4, produced a positive divergence in the macd. Boom!
Honestly, I don’t recall saying lack of volume. But I do recall saying lack of buying. Does that not seem more accurate? If you were to draw a wedge, to that said spot where we sold, isn’t that the proverbial bear wedge? That as you go up the wedge, you will increase in sellers and decrease in buyers? How do we see the said distribution?
Interestingly, I made this chart a few weeks ago to show that volume dropping to one of my buddies, who is trying to learn to see how, instead of volume charts, I use the macd. And you can see the weakness here already. So lets look at the reader’s point about distribution.
“The area of the chart that is missing is 7/25 to 8/8 is a good example of distribution.“
Now, according to this chart, he is actually saying that the move down is distribution. Hey, this person is potentially a certified T/A. I can’t argue but to use the facts as defined by other experts hired by StockCharts.
Distribution StockCharts.com Definition
The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security’s shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices.
Do you see the similarities in the definition of Distribution and Accumulation. It isn’t the resulting pop that is accumulation. And neither is the resulting drop that is distribution. It is the sideways movement of price and offsetting of bullish/bearish volumes to bearish/bullish volume respectively. So our reader is against the definition provided. How well is the definition given?
A picture is worth a 1000 words.
So what was I referring to in the previous blog entry?
Is it not the same?
Now, a little more about volume and dropping of volume. Volume can drop and it does so regularly during the day. If you believe that there is such a thing as trend, you will also understand that when volume drops, the trickling in will always follow the greater time frame trend.
As you can see in the charts, when it comes to the divergences, the process of accumulation and distribution takes time to take affect. Dropping of volume does not necessarily mean that you can expect an immediate turn around in the price action. That depends also on the time frame. But if it does drop, the greater trend will be followed. That is just what you should expect because it is the trend.
Thank you for a very excellent blog comment.