Accumulation/Distribution Indicators Question

[andykm]

Just wondering if there are any technical traders out there than could explain a little about the accumulation / distribution indicators.

While I don't really use indicators too much, I was interested in accumulation/distribution to see if these indicators could give a bit of a lead on the type of pressure may come on a share (up or down). I understand the principle they work toward by looking at where the close for the day was relative to the peaks etc, along with volume. The problem was with one of the first charts I went to, BHP. Basically since it started its recent strong climb from Jan this year, most of the various Acc/Dis indicators showed a strong distribution indication for almost the whole year while the value of the stock has basically doubled?

Why would this be the case?

Chalkin Money flow and Accumulation/Distribution Indicators were used.

Cheers

AndyKM

 

[MS+Tradesim]

Re: Accumulation / Distribution Indicators Question

Rather than use indicators (which as a whole are a step above useles) you may be better off looking into volume spread analysis. I hope someone who knows more about it will go into more depth (I'm a beginner with it)

 

[motorway]

Re: Accumulation / Distribution Indicators Question

OBV will be different again

They are all EOD ( I guess you are using daily charts )

So they are only inferring what the volume price action in the bar actually was.......That is OK as long as you realize that....

The usual rules of thumb about how to read these types of volume indexes are wrong ( imo )...

eg if the EOD inference is correct in this case..

You have rising support. And accumulation that is having to chase the stock up.. the Ac/Dis trends down when the close is lower than the open
But that must be "good" buying because price moves up ......


qualify acc/dis with an OBV index........

They are indexes rather than indicators ( non optimized to time , not like a 10 day moving average for example .
The main problem they have is they are not being drawn from the intra day action ...

It is the same ,strength in down bars situation..


motorway

 

[motorway]

Re: Accumulation / Distribution Indicators Question

various Acc/Dis indicators showed a strong distribution

OK I had a look at the chart

with the caveat that they are not intraday

ACC/DIS is showing someone distributing
OBV is showing someone accumulating

The price tells us which group is smart in this case...

The Acc/Dis will tend to display the action of short term traders
( except at important climaxes )

The OBV will tend to pick up those investing for the longer term

At turning points this is turned on it's head
The Acc/Dis will show for example aggressive buying by smart money
and the OBV will show the capitulation of by weak hands


Indexes of volume need to be seen in context

And the ACC/DIS index to be accurate needs to generated from intraday data
( a OBV if you like of course of sales )

Such indexes when read in context of price

( effort result )

Are a trade guider

There are various relationships of price and volume
and of the variations in the indexes themselves

That change through time

motorway

 

[2BAD4U]

Re: Accumulation / Distribution Indicators Question

...you may be better off looking into volume spread analysis...

I just finished reading the E Book "Master the Markets". A lot of good stuff in there but I am yet to test any of it as I only finished the book this week, but may be worth a look. (BTW it is a 17Mb pdf)

Download Master the Markets

 

[tech/a]

There is good reason not to use Oscillators.They can only be configured as averages of some description.Unless of curse they are coded as a binary indicator,which may be of some use.

Accumulation and or distribution is best read by pattern. Well thats my opinion.

Then analysing price action within that pattern to determine whether it is accumulation OR distribution then finally taking advantage of price movement as it clearly leaves the pattern in the direction of the Accumulation OR the Distribution.

You need to know (And VSA analysis is a great help here) what the tell tail signs are that indicate what a pattern is telling us.
Where the pattern is and how mature a trend is will also be of great help as will some divergence in some oscillators.

To illustrate here is a WEEKLY chart of BHP.
I like weekly as it cuts out a lot of noise however daily or even 120 min charts where there is ample volume will tell you similar stories.
Reading the tape in pattern recognition will serve you well.




I certainly recommend master the markets as a must for traders.

 

[2BAD4U]

Trying to get my head around this, but would this be considered accumulation? To quote Master the Markets - "... you will often see a sudden increase in volume on an up day - the stock is being hit hard and fast by just enough selling to knock it back down again, which prevents any sort of rally start.....These are the classic signs of accumulation"

 

[kingie_d]

2BAD4U,
I'm definately not an expert but I reckon those two upper tails are very bearish. Late last year I was reading a good explanation about long tails with high volume (if I can find the link I'll come back and post it) but the scenario was the other way around - with long lower tails at the bottom of corrections. It basically said that in this case whenever there is a good rally getting started, then there are a high amount of ppl selling into the temporary raise in price and as the amount of buyers run out the price gets pushed back down which gives the long tail. In the next few days after each you can see how the price goes down because of the lack of new buyers. Because it has happened on the two recent rallies I would expect that there will be strong resistance along the trend line formed by those two peaks. I'm not a fan of long tails in the direction I want to trade because I think it shows an imbalance in the buyer/seller relationship whenever the price tries to get past those particular points.

 

[CFD]

Not withstanding the squiggly lines you have fannying about all over the place and the erotic colour coding, the chart is in a down trend. Also 0.1000 now looks more like an area of resistance than support. This makes accumulation unlikely.

IMHO you will find it easier "to get my head around this stuff" if you turn off the "graphically" aforementioned. If you used a bar chart that only showed H/L/C with no indicators, would you then say the two bars you referred to are buying or selling? Then look at the volume, it's 2 to 3 x it's average of late, ie very high volume with a price bar that closed well down below the days high. This also makes accumulation unlikely.

 

[Timmy]

Hi 2B4U - just another comment to add to the others regarding those two days you highlighted. The two previous posters have explained why these are not the sort of "up" bars you want to see, the low relative closes, especially after an extended move higher at some stage through the session are not bullish. Compare the up bars with high volume that tech/a has highlighted in his chart example - each one closes at or near its high, which is a better sign of good quality buying.

 

[Timmy]

2B4U - one other thing, can you give me the page reference your quote from Master the Markets is from please, wouldn't mind checking its context.

 

[2BAD4U]

Not withstanding the squiggly lines you have fannying about all over the place and the erotic colour coding, the chart is in a down trend.

I don't look at all those indicators, just haven't bothered to turn them off.

Thanks for all the replys, I think it's time I got my nose stuck into another book.

Timmy, it was on page 73 first para. Talking about accumulation starting with a campaign.

 

[tech/a]

Lets try and make some sense of this.
CFD's not so subtle suggestion will help you focus on the bar.
You only need H,L and Close. Open is of no consequence.

Lets firstly look at your 2 examples.
(1) Firstly price has fallen 50% from its highs over a short term.This is clearly a sell off.
(2) Volatility has increased ranges are wide all over the shop.Not a sign of a pause.
(3) Lower lows are occurring all the time another sign of in stability.

To the 2 bars in question.
Wide ranges indicate volatility none more so than when price cannot be sustained near its high.Strong bars finish in the top quartile of their range.
The Huge volume indicates supply.Supply is sellers supplying stock to buyers,and to get filled these sellers were prepared to chase lower prices to get out.

Until these sellers are exhausted (And a sure sign is price rising on LOW VOLUME) price will not sustain higher prices.

There is much more to accumulation and distribution.

You shouldn't start to read a new book!
Just understand the one you've mentioned first.
Frankly that's all you need.
Perhaps it would be beneficial to follow FDL using some VSA and other analysis for a while to get a handle on it.
If interested I can report from time to time.

 

[tech/a]

I'll put my glasses on.

FML.

 

[nomore4s]

If you are after more info on accumulation/distribution, Wyckoff material is very good and has alot in common with VSA, I think Tom Williams studied Wyckoff.

Also go through some of Motorways old posts as he has posted alot of good info on the subject on this site.

 

[2BAD4U]

I'll put my glasses on.

FML.

That's all right, I knew what you ment. Thanks for the reply tech/a.

And actually I do have to get my nose into another book/s, I'm about to start my last semester of a finance course at uni. Hence I've been trading on fundamentals (because that's all I've learnt so far) but am now trying to learn technical analysis.

 

[tech/a]

Study Research Physics its easier!!

 

[kingie_d]

2BAD4U,
Congratulations on being in the last year of your Finance degree. I am starting back at uni this year for a Commerce/Finance double degree. I started a Commerce degree 10 yrs ago then got out to work in a completely different industry and have decided to go back to uni since i recently started getting involved with the stockmarket. I look forward to some heated debates about technical v fundamental analysis with the uni lecturers as I am a tech fan. Sorry guys this is getting off the topic...

 

[2BAD4U]

Kingie, good luck with your studies. I hadn't done any form of study for 13 years before I started this course so it was a bit tough getting used to studying again. The good thing is it is relevant to my job so the tax man is paying half

Now I will bring it back on topic. Would accumulation normally occur during range trading such as tech/a's chart as opposed to during an up / down trend like my chart?