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101: Accumulation and Distribution

Key Points

  1. Accumulation is a period of when people are buying. Think: If you are acquiring something, then something is accumulating. 
  2. Distribution is a period of selling, but has an exhaustion rate.
  3. Consolidation in the markets does not exist. Many traders will say things like “the market is moving sideways”, “the market hasn’t made up its mind yet”, “the market is making up its mind”. These statements are not true. The market always has its mind made up. When you look at your charts, you will always be in accumulation or distribution.
  4. The market is never out of the cycle of accumulation or distribution. The market is either beginning or finishing a period of accumulation or distribution. Periods of distribution can happen for several days, to even a month or more. This is where traders will call this consolidation, but we call this accumulation or distribution.
  5. There are steps to the move:
    • Step 1: Accumulation
    • Step 2: The move up (a part of accumulation)
    • Step 3: Distribution
    • Step 4: The move down (a part of distribution)
    • This four step process is a cycle that the market lives in 24-7. In this course, we are not taught to believe in the “market moving sideways”, or think that the “market has not made up its mind”. These are common sayings among many traders, even professionals, but we are more concise, by labeling a move as being either in accumulation or distribution. Accumulation and distribution can be long term, which is why you will see a coin do this for a long period of time (weeks).

Psychology of Accumulation and Distribution

  1. People are buying with a target in mind. When someone is buying something, they have a sell target in mind.
  2. After charting, have a stop loss in mind as well.
  3. We commit to a purchase with the intention of an outcome.
  4. You’ll spend hours charting your moves in advance.
  5. Once you buy something, you are already entering distribution.

Tying This Into Your Trades

  1. Every time we trade on a beginner or professional level, you will tie in accumulation and distribution to your levels of support or resistance.
  2. The longer the span of time of accumulation or distribution, the bigger the move typically is.
  3. A smart trader will see accumulation or distribution and time their trades accordingly.
  4. Ask yourself, “Am I entering into a period of accumulation or distribution”? 

Progress Notes

This course has removed my notions of consolidation from my thought process. Truly, I have heard many traders talk about consolidation, or sideways movement. Doing so has made me more analytical when it comes to charting. While charting, I will have 3 – 4 charts up with varying timeframes. The monthly, weekly, daily, and will even look at the charts down to the minute. Remember, my end goal is to become a scalper, so I look at very short timeframes, while continuing to learn the fundamentals of day trading. Presently, most of my live trades are swing trades.

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