Accumulation

One thing I have learned on my journey is that consistent investment success depends on the synthesis of many indicators, one of which is accumulation (buying of stocks).

Institutional investors accumulate stock over a period of time to avoid raising the share price with one large purchase while insiders accumulate stock based on their knowledge of the company. As an indicator, accumulation can indicate the near term price performance of a stock but will not serve too much benefit other than letting you know whether the stock price is advancing or declining.

Basically, an accumulation day occurs when a stock closes higher and trades more volume compared to the previous day. The intensity of the accumulation factor intensifies when the increased volume is higher than the daily average volume. While accumulation is a good thing, an increase in the intensity is even better. The intensity increases because more people are buying the stock which in turn reduces the number of shares available for purchase thus increasing the value of the stock. Simply put, it is the law of supply and demand. Economics 101.

When you are trying to determine the overall trend for a particular stock, you can use accumulation days in your analysis. Normally, if a stock has had a couple of accumulation days, I view it as a bit bullish. The opposite of accumulation is distribution or the selling of stocks. I generally look for stocks that show signs that people are buying, not selling.

It is important that you rely on your own judgment when making investment decisions after all, it is your hard earned money at risk.

You can find the average volume per day and whether or not a stock has had an accumulation day by using the information on many of the free on-line services such as Yahoo Finance or Google Finance.

I hope this posting was helpful.