Accumulation is an organized buying of the market – the positions are bought over a range of time at similar prices. This technique is used by large volume traders who need a high amount of liquidity to trade. It’s a functionality mostly found on commercial software used by investment banks and hedge funds, though some retail trading platforms, such as Interactive Brokers, also provide this functionality. Distribution is the inverse (organized selling).
The differences in Forex are not noticeable. In the stock market and commodities futures however, distribution usually occurs at a much faster pace than accumulation.
Contrary to what many supply/demand traders believe, accumulation isn’t necessary for an uptrend to take place, if there are already a good amount of institutional traders behind a move. Order clusters, which can be seen with level III access of the market, also play a role in whether there will be accumulation or not.
A buying climax is a wide bar, which has the close off the highs (on the mid of the bar, or lower). It also has very high volume, 3x or more the session average. It usually appears on market tops.
Congestion zones can be either:
- Buying congestion zones
- Selling congestion zones
A buying congestion zone is formed when there is a large amount of buying in a given price, and the market confirms the buying by rallying shortly after. We can consider that there will be likely many large traders holding long positions at those prices, and they will support the market.
Heavy supply means that there were large traders selling the market, and it can be seen by the prices and volumes. Heavy demand is the inverse (large amount of buying).
This terminology is used by Richard Wyckoff in his trading courses and books. It’s one of the market phases that occurs after accumulation/distribution. It means the market has started trending.
It describes what’s currently going on in the market (see what each one of them mean in this same glossary):
- Mark-up/Mark-down (trend)
No-demand / No-supply
A no-demand is a bar in which the market goes up on low volume (lower than session average). It’s used as a confirmation for entry when there is supply behind. Vice-versa for no-supply. These are shown as “low volume” in Advanced Volumes indicator, and the VSA indicator also incorporates these.
Re-accumulation / Re-distribution
Re-accumulation is an accumulation process which appears during the course of an uptrend. It occurs if there is still a worthy potential up movement ahead.
Bar in which the pending orders below (stop and limit orders) are hit, in a sudden price movement. The volume is high, and the price quickly recovers and closes at maximum’s in the same candle.
A bullish test bar can be of 2 types:
- It can be a bar like no-supply; only if significant demand is present in the background.
- It can be a bar like “downthrust”; only if significant demand is present in the background.
It’s called a test because it tests for supply in the market: when prices are taken lower, and there isn’t much volume, there is probably not much supply left at the current prices and the market is free to go up. A failure for the market to rally after a test is a bearish indication, that shows lack of institutional participation in the market.
This pattern is formed by 2 bars – one wide down bar, closing on the lows, and an almost identical bar, but to the upside. The volume on the first one should be high for the pattern to show supply. In a higher timeframe, it will show as an upthrust.
Similar to shake-out, with a difference on the volumes. It’s a bar in which the pending orders above (stop and limit orders) are hit, in a sudden price movement. The price quickly recovers and closes at maximum’s in the same candle. The volume can be high or low, and both are bearish indications.
thanks, but why does accumulation/distribution happen faster in stocks than Forex?
It happens faster in Forex actually, due to the high liquidity of these markets. A big trader can place substantial buy orders in the market without worrying too much of prices rising against him while the orders are executed, whereas in stocks, that’s not exactly the same. In Forex an accumulation process can take just 1 week (in the daily timeframe), while in stocks it’s rare to see it last less than 1 month.