Accumulation vs Distribution

Technical Newsletter

Intro

Hi everyone, I wanted to write a more technical newsletter about the difference between accumulation and distribution as I do seem to get a lot of questions about this topic on twitter. Both accumulation and distribution patterns are pretty easy to spot once you know what you are looking for and can definitely help your trading strategy.

Firstly, I want to mention that yesterday a new episode of my podcast ‘TheBlockExperience’ went live, we had on Bitcoin Birch to discuss the current state of the crypto market, algorithmic trading and how this space is changing. If you would like to give it a listen then please do check it out on Youtube or Apple.

Accumulation

Lets firstly discuss what is accumulation and how it takes place on the charts. Individual accumulation is basically the increase of a position over a certain period of time, meaning anyone who is slowly increasing their position over a designated period of time is taking part in an accumulation process. This meaning of the word is not really important to us, we are more focused on the macro perspective when accumulation is taking place in larger proportion. Accumulation on a macro level can pretty easily be spotted on any chart, while price is at key support and price is moving in a sideways pattern, showing strong amounts buying action. (As shown below)

Shown above is an example of Accumulation, if you see price showing this style of a pattern at support then this is accumulation taking place on a wider scale. Even though this may be a pretty simple and general ‘term’ used in the trading space, accumulation can be very useful to spot as it shows where people assume there is a fair value on price and clearly shows when buying is taking place.

Distribution

Distribution in its most basic form is pretty much the same as accumulation but instead of taking place as key support we instead see it taking place as resistance. So exactly the same style of pattern, price at key resistance and moving sideways but this time people on a wider scale are selling their positions slowly over a period of time.

There is not really much to discuss over distribution as everything I mentioned for accumulation can just be carried over and reversed. But just remember that distribution is the process of selling off a position slowly over a period of time.

A Larger Pattern

So I have highlighted above both the meaning and understanding of accumulation and distribution as I see it. These patterns are really easy to spot when looking at a chart as long as you can clearly identify areas of both support and resistance, but I also wanted to talk about a larger pattern that involves both accumulation and distribution and saved me some capital over the past months.

So something I posted on twitter a few weeks ago was this…(shown below)

Now I posted this in regards to a Bitcoin/USD pairing and it played out fairly well from the initial post. So this pattern is a Wyckoff trading pattern that uses both accumulation and distribution in one cycle to determine price direction, what we see is clear signs of accumulation followed by a ‘Markup’, then distribution and then we see a ‘Markdown’. Markups and Markdowns being both trend-based movements that normally consist of three waves in the trend direction but sometimes can be more or less depending on the circumstances.

While the example which is shown above may not consist of the three waves markup and markdown as clearly as this Wyckoff trading pattern which is shown below, there are some key similarities which made me focus on trading this pattern, the two keys ones being the accumulation and distribution.

I just wanted to give one example of how Accumulation and Distribution can be used in a more productive way than just seeing where there is larger scale buying or selling. This is just one example of how they can be used in trading patterns, but there are many other ways in which they can be used if you just do a little bit of research.

Last Thoughts

While reading back through this newsletter, it seems a little lacklustre to say the least so I first want to apologize if this newsletter is sort of confusing of not really portraying the message I want. Accumulation and Distribution are pretty general terms when it comes to trading and this newsletter may have been a little useless explaining there meaning and my thoughts and opinions on them, but I did have a few messages on this topic so I thought I would just write on this Thursday afternoon.

Please let me know what you thoughts on the content above?

Thanks

- Cactus