Understanding an Accumulation Day
Posted by Blain Reinkensmeyer
February 27, 2007 at 7:15 pm
Before getting into the importance and meaning of an accumulation day, it is important to look at the basic meaning of the actual word. Accumulation is based off of accumulate which means to add more to, gather, amass, etc. You accumulate alot of things in life such as wealth, strength, friends, etc. In the stock market accumulation is used to describe the accumulation of shares by traders. The more people that buy, the more shares that are then purchased, which means more shares are accumulated. Piece of cake!
Things get even easier when you add the word “day” into the picture. It is exactly as it sounds: an accumulation day is when people amass or accumulate more shares than sold in a single day. The words have an extremely positive connotation with a stock, because heck if we are accumulating shares then we are buying which drives the stock price up. The more buying we do, the more accumulating that is going on, and the more a stock price will rise.
Taking things one step further, a true accumulation day is one that has higher volume (or the amount of shares traded) than the day before, and the stock closed (finished the day) up overall. So, if stock XYZ closed yesterday at $13.50 a share with a total of 100,000 shares traded, and today closes as $14 a share with 300,000 shares traded, then we can say it was an accumulation day overall.
The saying, “the more the merrier” taken to a new level - Accumulation days are extremely effective when determining the overall direction (or trend) of a given stock. Applying basic understanding, if I know that the last two days have been accumulation days, well then I can safely guess that the stock is looking pretty strong (or bullish) overall! I don’t want to be buying a stock that has had two out of the last three days be distribution days (the opposite of accumulation day). I want to be getting into stocks that are showing signs of people buying alot, not selling.
So, what we have then is that an accumulation day is any day when a stock closes higher than the day before and trades more shares (or volume) than the day prior. There is also what is called a heavy accumulation day, and this is a very big sign of a well performing stock. heavy simply means in this context very strong, and for the stock market means that the day not only closed up on higher volume, but with volume higher than the daily average.
Take this meaning word for word and look at it as it is. If we look at a stock and see that instead of the average 1,000 people make trades, 10,000 people make trades, AND the stock goes up 5%, well we know that there has been ALOT of buying (or accumulating) of shares. This is exactly what a heavy accumulation day represents. Simply put, the more accumulation days the better, and if they are heavy accumulation days, then strap on your seatbelt because you may have a big winner.
How can I find the average volume per day and and see if a stock has had an accumulation day?
The way I do it is through yahoo finance. Pull up a stock quote, and you will see the following:
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2.7887 (0.80%)This is a quote and I can easily find the information I am looking for:
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Now, this quote was taken at 1:16 PM as seen, so the day isn’t over yet. I want to look for this information after the close so I can see for myself what the totals are. Right now the volume is 5,458,599 and the stock is down .80%, so if this was the final information on the day then this day would not be an accumulation day not only because the volume was lower than the average but also because the stock closed down.
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Your saying in second paragraph in bold “an accumulation day is when people amass or accumulate more shares than sold in a single day” is quite illogical, as how could you have more shares bought then sold. The number has to be equal, isn’t?
still down the article definition not clear “showing signs of people buying alot, not selling” where for every buyer you must have a seller
Great comment Simon, emailed you with an explanation
Thank you Blain for your kind and wonderful in-depth explanation, in fact, it does clear the issue. However, the bottom line is still as I understood, you are simply inferring from the volume reading that there would be a case of accumulation or distribution by simply relying on large increase in volume accompanied by increase in price in the first case and decrease in price in the second. But, the volume reading by itself would not divulgate information on the relative number of buyers or sellers and which side is tipping as I understand.
Thank you once again for your consideration and congratulations for your site. Best regards. Simon
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