Accumulation and distribution are the two pillars of long term investment, all, all, all markets are based on their long term movement based on accumulation and distribution. The periods may be longer or shorter, but they are always repetitive, economic cycles are like that, and history shows that they have been done continuously for many years.
Accumulation and Distribution
When we talk about classic analysis, we refer to the accumulation phase and the distribution phase in the market. The accumulation phase is when buyers enter the market. They stock up when prices fall because they believe the trend is about to change. Accumulation means that there are people in the market who make early purchases and their roles are taken over by shareholders who have lost confidence in the company. Institutional and/or professional investors buy shares gradually over a long period of time to prevent share prices from rising, which will happen if they try to buy the desired amount of shares at once.
En esta etapa, el llamado plano y la acción pueden ir de lado. La mano fuerte se acumuló lentamente y la mano débil se vendió rápidamente.
The breakout from the previous period occurred with a sharp increase in volume. This is the main signal that the accumulation is over, the price will suddenly explode, although it has returned to the breakout point with a slight correction. This is the time for entry. Moving averages appear and some investors are buying. As the price rose, more and more investors joined us until they reached the top of the bull market, including a large number of new investors. The price is «hot», they are writing it in the press and talking it up in the media, the time to sell is approaching. Let the paper fall sharply as it rises, the rest will be sold at the top.
At this stage, the flat call and the stock can go sideways. The strong hand slowly accumulated and the weak hand sold off quickly.
The distribution occurs when these first buyers decide to sell the accumulated shares. When the price rises, they begin to sell. As the number of shares for sale increases, it becomes more difficult to increase the price further. This allocation phase marks the end of the uptrend. Allocation is the systematic selling of a large number of shares over a specific period of time. Therefore, it is best to prevent the price from falling by selling all these shares at once. This phase is also known as a top and the moving averages begin to lose strength. Small lots are sold to buy and large lots are sold. It pulls all the paper down hard. The news is the order of the day and no one doubts that it is extremely bullish. When the beginner buys the last one, the price begins to fall. The final phase begins.
We must understand that the stock market is not made for small investors, and that only with advice and study we can become winning investors in this complicated world. Many small investors bought shares in the distribution market, got hooked and see their shares fall one day after another. Horizontal Distribution: The market is falling in large volume, the averages are falling and the selling is beginning. You can still hear continuous buy recommendations given by the brokers themselves to release stocks.
Remember that we do not need to cover all possible scenarios here, as the market is completely different every day and every process as well. However, it is necessary to understand the general concept to define any event. In other words, it is about mastering the logic of how markets work. That way, you can always know what is happening, whether it is today or decades from now. The price/time relationship will always change. It is based on market timing to obtain volatility (volume) based on the order flow of the participants’ volume. In turn, they trade from an emotional context, repeatedly offering the same behaviors.
Finally, very long accumulation and distribution processes are not recommended. They are usually done to initiate a return, not momentum. On the contrary, if you run a long process to generate momentum, the probability of success is very high.