How one checks if the congestion area is really an accumulation area

How one checks if the congestion area is really an accumulation area.


There are a few things to lookout for..

First, the indecision should be quite visible. In other words the volume should be low and quite. No huge volume upsurges. Even if the volume is relatively higher the range between up day volumes and down day volume should be narrow.

Second, the spread of the bars (High – Low) should be narrow.

Third, the volume should shrink near the support line and expand near the resistance line.

Fourth, the stock should be trading in a range for some weeks if not months.

Also you may see some shakeouts in the trading range. The SM would temporarily drive down the prices below the support line in order to takeout the stop losses and panic the weak hands into selling. You will see the stock bounces back above the support line immediately. By this process the SM is shaking out the weak money from the stock. For most of us it is just a failed breakout. Sometime the stock instead of bouncing back would continue to drop if there was too much supply. So trading these breakouts could be tricky.

Also it would a good sign if the stocks trading range is much above the support line.

Normally we would see some of the above signs if not all in the acuumulation area.

There are many other patterns which signify accumulation. Some of them are rounding bottoms, reverse head and shoulder and double bottoms (or “W”) patterns. Each could be explained in terms of SM activity. However we would go into the details now. One thing to keep in mind when evaluating patterns is that it is very important to check the volume pattern as well.

For an example we will look at the chart of HCC where a clear accumulation indication was seen June 2007...