Accumulation versus Distribution. .................................
Since for every buyer there is a seller and conversely, what determines Accumulation versus Distribution. Is it buy orders outnumbering sell orders (or conversely)? On any given day, when there are, for example, 2000 sellers of a stock, there are also 2000 buyers. Some are accumulating, others are distributing. But the net balance is 0. What determines an Accumulation day vs. a Distribution day?
When we use these words, as opposed to buy and sell, we are referring to systematic buying or selling, presumably in large quantities, by somebody like an institution, a hedgefund, just somebody smart and rich or somebody in the know or whatever. If they are accumulating, we assume they expect the stock to go up, or if distributing go down. We know nothing about the time frame they are thinking in, and in fact, we don't even know for sure whether they are expecting either or a rise or fall in price. Maybe they're distributing an estate, or garnering cash for a completely unrelated reason. These programs of accumulation or distribution typically take place over a period of time: maybe a week or two, maybe a month or two, maybe much longer.
Not only do those carrying on such programs tend to be well informed, but they tend to have an impact on prices by the weight of their activities. Now, before leaving this definition, let me say that the most important word in the paragraph above is systematic.
How do we detect such programs? To begin with, there is hardly any way that a large operator can carry on such programs without leaving some tracks. The existence of such a program affects the character of the way a stock trades. In what way? Obviously, there will be changes in volume and in volatility. The bias of advances on advancing volume or vice versa will almost always be involved. There will possibly be detectable changes in rate of price change. Picture patterns will develop, triangles, rectangles, saucer bottoms, head & shoulders tops. These and many more are all usually the result of systematic accumulation or distribution. There will be marked changes in character - the most important thing we are always on the alert for. This will tax your powers of observation - something I'm always harping about. Sometime you will observe a change of a type you never saw before. That's when you're really getting good.
Now to your assertion that for every buyer there is a seller and vice versa. I have said this many times so I can't criticize you for saying it. However, it's not quite right. I use it to correct people asserting "there were more buyers than sellers today," or some similar erroneous simplification. But you have to go a step further to explain accumulation and distribution.
It's not the number of buyers and sellers who even out, it is the number of shares sold versus the number of shares bought. A few buyers (say three) may accumulate 100,000 shares, while a large number of sellers (say 500) let go of 100,000 shares. The buyers may be accumulating while the sellers are just selling. These large buyers may have a goal of a million shares. When the price is right, they move in trying not to run the price up too far. As it moves up, they back away, let it drop back, then do it again. Remember, the accumulators or distributors are always the aggressors. They are the ones who drive the price in their direction in spurts. Remember that an uptick on increasing volume, whether an individual transaction or the net change for a month, is a concession on the part of the buyer. He has to make that concession and smart tape watchers will see it happen. A downtick, of course, is just the opposite. A concession on the part of a seller. Remember, this is happening over a period of days or weeks or months. With experience, you can recognize such activity (although it will always be just an educated guess). And certain indicators can often depict a detection of this activity.
Source: Don Worden, TCNet. |
