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International Investing / Australia (All-Ordinaries)


Subject:  Re: Charting Getting Started Date:  3/2/2002  6:11 PM
Author:  jono202 Number:  3711 of 6186

I'm trying to get my head around some of these profound statements

DB, explains in more detail the relationships between supply & demand in the below link.I don't agree with everything DB states, however his site offers an introduction to concepts that I've found to be sound.

Accumulation is the process whereby a quantity of stock is acquired at the lowest possible price. It is not throwing money at a rocket or even a breakout. It is a subtle, sophisticated, and sly effort to amass a stake that is large enough to not only make the next phase (the "markup" phase) worthwhile, but also possible. The markup phase becomes possible because the number of shares available for trade has been quietly reduced, and when the demand for those shares increases, the prices charged for them can be increased as well. In other words, as with diamonds, there may be a lot of them, but they're released into the marketplace in controlled amounts in order to keep the price artificially inflated (stocks, like diamonds, are worth only what people are willing to pay for them).

The accumulation process takes place in what is called a "congestion area", a sideways movement of the stock in which price shows no inclination to take off either up or down and is accompanied by consistently low volume (see Bases). The low volume part is important, as low volume levels are characteristic of indecision (if people were confident in a decision to buy or sell, they'd do so, and in big lots too; when volume is high, everybody's being decisive--they just don't necessarily agree on whether the stock should be propelled higher or driven lower). Low volume can occur in congestion areas that are part of uptrends or it can occur in congestion areas that are part of downtrends. In either case, the determining characteristic of the pattern as it relates to accumulation or distribution is the indecision within the pattern itself as to direction, not necessarily the prior direction, for one can never be really sure in which direction the stock is going to break out except in hindsight.


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