Time after time I see people posting in threads that a certain stock is accumulating, the supply is dwindling, and it's getting ready to skyrocket in price. Do they really understand the accumulation process and what it means?
I pose this question to all of you out there: What are true signs of accumulation?
Here are my ideas concerning what I believe are signs of accumulation.
1. Little price movement for a good amount of time.
2. Money flow has to be positive. If there is a frequent drop in moneyflow then to me it just means that there is loss of interest in the stock and it's trading normally. If there is a constant money flow into the stock then this means someone is accumulating. What I think is a good example is CAMH over the past two months. After Februarys last run and peak the stock began to oscillate around 1.5. The money flow, however, remained flat. Someone was still accumulating shares.
3. Accumulation/Distribution line as well as the Chaikin Oscillator and OBV. These ones seem apparent considering the topic. Accum/Dist and Chaikin lines take into account the volume and HLC of a trading day. OBV takes into account only the closes and volume. To me these are just different ways to measure the money flow as well of a stock. The Accum/Dist lines especially gives a value to each day about how important the movement that day was.
The formula is ((C-L)-(H-L))/(H-L) for a "close location value." C is the close, L is the low, H is the high. That value is then multiplied by the volume to give weight to the price movement of the day.
The only problem with these tools is they do rely on price movement to come up with values. Price movement is not needed in an accumulation phase. If there is a large supply of shares to be bought then it is almost independant on the demand of the stock and the price is kept low because of the huge supply. Accumulation periods are supposed to be inactive periods of low volume where deep pockets can acquire shares without attracting attention i.e. "demand."
OBV is a similar tool to the above two but is too simple to be a great tool to use before the others. It's outdated but still safe to use as reassurance.
3. RSI and Williams %R also are considered accumulation tools. I don't think so much actually. The previous tools I mentioned take volume into consideration. RSI does not. RSI, to me, is more of a tool used best when the stock is moving. I view it as a risk/reward tool. It measures average gains versus average losses. So when a stock is rallying the average gains overshadow the average losses and the "relative strength" is positive. Make a not that the word "average" has a different meaning with this oscillator. Go to http://stockcharts.com/education/IndicatorAnalysis/indic_RSI.html for a full explanation.
Williams %R is similar to RSI in that it too does not take volume into its formula. It can show a stock as being oversold based on it's formula, yet the stock can continue to plummet and remain in oversold conditions on the %R. Williams %R bases its formula off of highs and lows against closes. A stock can be trading sideways yet shares can still be bought up and drying up the supply of shares.
I would rank the RSI above Williams %R as far as usefulness.
I've heard the idea that you can watch L2's and see an MM accumulating. Although not impossible, I don't see the direct connection to accumulation. It would also be strenuous work to watch a specific stock and it's MM's to determine accumulation. Accumulation can take weeks to even months. I also can't imagine that the trading pattern of one day can mean a stock has been in accumulation.
Accumulation trading is a technical analysis trading method. Thus, I believe it should be able to be found on a chart using certain tools that can have signals recognized in seconds. A good chart analyzer can base a decision within a minute or two using their tools. Support/resistance/MACD/RSI/Money flow/ Volume/Williams %R/ etc.. I don't see Level 2's coming into the equation with accumulation trading.
I'll be glad to go into detail about other tools I feel would be useful for recognizing accumulation, but I'd like to hear what all of you have to say about the topic. What do you all use or believe are signals for accumulation? Matt
Posts: 1504 | Registered: Sep 2004
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I'd also like all of you to respond to what I've said about those tools. Constructive criticm only please. Thanks. Matt
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Does anyone know of a "free" online service that could perform the calculations that Matt wrote about?
Posts: 191 | From: Ontario, Canada | Registered: Mar 2006
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All of my calculations apply to any stock. I was giving the actual math for the common tools you will find on sites such as bigcharts.com and stockcharts.com. Investopedia.com gives excellent simplified definitions of what certain technical tools do. I suggest you read what stockcharts.com on the tools in its chart school to get the true meaning of them. That is where I get the mathematical formulas for them.
These formulas work for any stock so much as they can have volume, an open, high, low, and a close. Understand that when I say they have volume, I simply mean they're listed. If a stock has no volume for a day they can still have an RSI, Williams %R, Accum/Dist Line, OBV, Chaikin line values.
The most important asset you can have is to educate yourself. Learn what these tools really mean. In my opinion, when RSI and Williams %R show signals of overbought and oversold, that is not necessarily the truth.
That is why I am asking for more opinions on how to recognize accumulation. "Volume precedes price." Matt
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I like to use CMF Chaikin money flow, it's clear and simple. Take a look at USXP and SHRN before they took off! You can see accumulation with the price going down as well. One that is just starting to accumulate right now is PCCE...
Posts: 85 | From: EU | Registered: Feb 2006
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permanentjaun nice topic. Of course the traditional sense of accumulation is that the stock is being accumulated by individuals and institutions thus eating up the float causing a demand for shares and the PPS goes up; I like to use CMF Chaikin money flow to see this. More importantly to myself I see that you mentioned MM's accumulating and glad that you did; I think that is one reason why I rely on RSI more; if a stock is oversold chances are the MM's have accumulated stock at lower prices and they will look to distribute stock at higher prices. IMO though in order to truely see accumulation you must know the stock and watch it carefully for a while(weeks - months dare I say years lol). I once watched a stock get taken down slowly that I held over a few months; then one day when most people stopped watching it volume began to pick up again, all within the same PPS range and then the pump began and the stock took off. Of course I was lucky or brilliant because I loaded up with the MM's and we went on a fantastic voyage northbound.
-------------------- ^..^ Posts: 3897 | From: New York | Registered: Jan 2004
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quote:Originally posted by BuyTex: Mag, was that CYOS? that morning call comes to mind...
I'm wondering why charts on accumulation? what about volume reports?
No this was about 2 years ago on ticker TTGG before it became STTC and I bought like a wild man at .02 and rode it up to .22 it continued to goto .30's but I was happy with my hefty profit. Incidentlly I did just pick up a few shares in CYOS while interest is elsewhere.
-------------------- ^..^ Posts: 3897 | From: New York | Registered: Jan 2004
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Incidently I sold CYOS today they released an SB2 form today - CYOS SB2 526,810,645 shares CYOP SYSTEMS INTERNATIONAL INC 0001111698 SB-2 3/17/2006 CORNELL - good grief I don't feel like dealing with them LOL
-------------------- ^..^ Posts: 3897 | From: New York | Registered: Jan 2004
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Easier way to look for accumulation that is being quiet is the daily volume/RSI/OBV is steadily increasing while the price isn't ... do not need complicated mathematical calculations to detect accumulation... but what i describe usually refers to institutional accumulation in mainstream stocks not penny stocks.. my philosophy has always been KISS (Keep It Simple Silly) .... much like card counting in Blackjack... there are various methods of counting cards.. some simple and some complicated.. but both do the same job with the same results.. so why bother with the complicated one? ....
-------------------- Let the world change you... And you can change the world.
Ernesto "Che" Guevara de la Serna Posts: 4669 | Registered: Mar 2004
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Incidentlly I did just pick up a few shares in CYOS while interest is elsewhere.![[Roll Eyes]](rolleyes.gif)
