Accumulation Stage Identifier and Strategy around for Trading

9 Sep 2022

In the psychology of trading at any market condition, there are four stage usually occurs on any tickers.

Stage 1 -> Neglect phase or consolidation phase

• It occurs when the company does not produce the expected result and waiting for next result.
  
  
• It can extend for days, weeks, months and years. Never give entry at this stage though that blue-chip told to be cheaper in price.
  
  

Stage 2 -> Accumulation

• It occurs when the company's earning and sales consistently grows.
  
  
• It can extend for days, weeks, months but should not expect the continues increase in price, as there will be potential pull-back which can be considered as opportunity to accumulate.
  
  
• If the company fundamental is good, just give some space at the time of pullback.
  
  
• Most of the time, the pullback volume will be low to compare to volume at the time of increase.
  
  
• Usually, the stock that is going through accumulation stage will definitely trade above 200SMA and short term MA will be greater than long term moving average.
  
  
• Continues the highest high and highest low along with volume.
  
  

Stage 3 -> Distribution

• It occurs when the company's earning and sales stagnated due to certain reason.
  
  
• It can extend for days, weeks while the price and volume highly volatile.
  
  
• High volume while the price low
  
  
• Typically, the stock that is going through distribution stage will certainly trade below 200SMA and short term MA will be lesser than long term moving average.
  
  
• Continues the lowest high and lowest low along with volume.
  
  

Stage 4 -> Capitalization

• Price reaches the 52W low while volume spikes on big down.
  
  

In each stage, the price & volume are perfect indicator to highlight the situation and the trader with proper discipline and patients can certainly reap the fruitful outcome of accumulation stage.

Based on this explanation, here is the strategy that is created with 50,90 & 200 Simple moving average and price volume trends (PVT) indicator applied on MACD to signal whenever the PVT convergence and divergence.

Note:


*As the indicator designed to signal on the ticker that trade above 200 moving average, it is good to use this strategy on companies that are fundamental strong.


*Whenever, there is pull back happens, the strategy might signal for exit, however, here comes the traders patient based on the conviction on the particular chosen stocks.


*White being patient is good, disciplinary in following the strategy also important. Hence, consider the action when the stock goes opposite direction from your expectation.

Hope this strategy would help you find the profit.

Happy investing.