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VOLUME
SUBJECT SUMMARY
DISTRIBUTION AND ACCUMULATION
At the top and bottom of market moves price activity slows and briefly shows a consolidation or broadening pattern. At market tops this is a distribution pattern. Canny traders sell stock at high prices to less skilled market participants. They distribute their holdings.
At market bottoms these same canny traders accumulate stock from sellers who have given up in disgust. These patterns are not sudden. They develop slowly, keeping prices within a temporary trading band on steady volume. When these patterns coincide with GMMA crossover points in two time frames we get additional confirmation of a major trend change.
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Last issue (WK33) we left you with a volume display. We asked you to use the volume chart to identify the time points at which you believe volume shows these changes in trend. The full chart display matching price with volume shows how difficult this task really is. The boxes match the time period of the trend change. There is no clear relationship between volume and trend turning points. In some cases there is a decline in volume as the trend makes a major change such as change B. Elsewhere major volume spikes occur in the middle of trends and do not have any impact on the trend.
We assume there is a volume relationship, but we rarely test it rigorously. This idea has become an accepted convention and forms the foundation of several technical and fundamental analysis techniques. It is so commonly accepted that we no longer seriously put it to the test.
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Martin Wong
Trading Coach
Investmatic Management, SoHo, Ara Damansara, Selangor DE, Petaling Jaya 47301, Malaysia
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