Wednesday, April 14, 2021
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Analyzing Accumulation and Distribution Volume Patterns

Consider accumulation as purchasing and distribution as selling. A bullish stock usually exhibits powerful hints that a stock is getting accumulated. On the other hand, a bearish stock displays more collection in the form of distribution.

The stock experiences more buying pressure when there is more accumulation. Likewise, it experiences selling pressure when there is more distribution. The trends will change according to the pressure on both selling and buying sides.

HOW TO IDENTIFY ACCUMULATION AND DISTRIBUTION

Accumulation is represented by positive volume and distribution by negative volume. The most straightforward way to deal with accumulation and distribution patterns is to simply look over the chart and volume bars. The size of the bars should be carefully analyzed, mostly those outside the average size.

When the big bars become green and the smaller ones become red, it shows buying volume is more than selling volume. This shows accumulation.

Contrarily, when the big bars become red and smaller ones become green, it shows more selling than buying. This shows distribution. The focus should be on the overall patters rather than just one or two.

ANALYZING VOLUME IN UPTRENDS, DOWNTRENDS AND RANGEBOUND MARKETS

Before analyzing the volume pattern, you should identify what type of trend the stock is in currently. This can be learned by understanding the Stock trend or its concerned Sector Trend. Top of these, we need to ensure if it’s a cyclical Stock or not.

  • You can expect the prolongation of uptrend, if stock in uptrend has a positive volume pattern.
  • You can expect the prolongation of downtrend, if the stock in downtrend has a negative volume pattern.
  • You can expect converse at some point, if stock in uptrend has a negative volume and stock in downtrend has a positive volume.
  • You can expect breakout at some point, if stock is rangebound with new accumulation.
  • You can expect breakdown at some point, if stock is rangebound with new distribution. 

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