KNE AccumulationUnderstanding an Accumulation Day
Beforegetting into the importance and meaning of an accumulation day, it isimportant to look at the basic meaning of the actual word. Accumulationis based off of accumulate which means to add more to, gather, amass,etc. You accumulate a lot of things in life such as wealth, strength,friends, etc. In the stock market accumulation is used to describe theaccumulation of shares by traders. The more people that buy, the moreshares 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: anaccumulation day is when people amass or accumulate more shares at theask (putting in buy orders) than at the bid (putting in sell orders) in asingle day. The words have an extremely positiveconnotation with a stock, because heck if we are accumulating sharesthen we are constantly feeding buy orders into the market which drivesthe stock price up. The more buying we do, the more accumulating that isgoing on, and the more a stock price will rise.
Taking things one step further, a true accumulation day is one thathas higher volume (or the amount of shares traded) than the day before,and the stock closed (finished the day) up overall. So, if stock XYZclosed yesterday at $13.50 a share with a total of 100,000 sharestraded, and today closes as $14 a share with 300,000 shares traded, thenwe 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 overalldirection (or trend) of a given stock. Applying basic understanding, if Iknow that the last two days have been accumulation days, well then Ican 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 thelast three days be distribution days (the opposite of accumulation day).I want to be getting into stocks that are showing signs of peoplebuying 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 heavyaccumulation day, and this is a very big sign of a well performingstock. heavy simply means in this context very strong, and for the stockmarket means that the day not only closed up on higher volume, but withvolume higher than the daily average.
Take this meaning word for word and look at it as it is. If we lookat 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 thatthere has been ALOT of buying (or accumulating) of shares. This isexactly what a heavy accumulation day represents. Simply put, the moreaccumulation days the better, and if they are heavy accumulation days,then strap on your seatbelt because you may have a big winner.