From the perspective of Wyckoff analysis, both accumulation and redistribution involve price action within a trading range (TR), but they represent vastly different underlying market dynamics:
Accumulation:
Underlying Trend: Accumulation typically occurs at the beginning of an uptrend.
Supply and Demand: Smart money (institutions, experienced traders) are actively buying shares, causing demand to outweigh supply. This pushes the price upward with increasing volume.
Price Action: The price action in an accumulation phase is characterized by testing and absorbing supply (support levels). There may be false breakdowns and narrow price ranges as buying pressure builds.
Redistribution:
Underlying Trend: Redistribution typically occurs within an existing downtrend. It's a pause in the downward movement before a continuation of the downtrend.
Supply and Demand: Smart money is distributing (selling) their holdings, causing supply to outweigh demand. This puts downward pressure on the price, but volume may be lower compared to accumulation.
Price Action: The price action in a redistribution phase may resemble accumulation with testing and absorbing support, but with key differences:
False breakdowns may be weaker and fail to hold.
**Upward movements may be less vigorous and lack confirmation from volume.
Price tends to create lower highs compared to previous rallies.
Distinguishing between the two:
Differentiating between accumulation and redistribution can be crucial for informed trading decisions. Here are some additional points to consider:
Context: Analyze the broader market trend and the stock's specific history.
Volume: While not absolute, accumulation typically sees rising volume, while redistribution may have lower or stagnant volume.
Confirmation: Look for confirmation signals such as breakouts above resistance for accumulation or breakdowns below support for redistribution.
Accumulation:
Underlying Trend: Accumulation typically occurs at the beginning of an uptrend.
Supply and Demand: Smart money (institutions, experienced traders) are actively buying shares, causing demand to outweigh supply. This pushes the price upward with increasing volume.
Price Action: The price action in an accumulation phase is characterized by testing and absorbing supply (support levels). There may be false breakdowns and narrow price ranges as buying pressure builds.
Redistribution:
Underlying Trend: Redistribution typically occurs within an existing downtrend. It's a pause in the downward movement before a continuation of the downtrend.
Supply and Demand: Smart money is distributing (selling) their holdings, causing supply to outweigh demand. This puts downward pressure on the price, but volume may be lower compared to accumulation.
Price Action: The price action in a redistribution phase may resemble accumulation with testing and absorbing support, but with key differences:
False breakdowns may be weaker and fail to hold.
**Upward movements may be less vigorous and lack confirmation from volume.
Price tends to create lower highs compared to previous rallies.
Distinguishing between the two:
Differentiating between accumulation and redistribution can be crucial for informed trading decisions. Here are some additional points to consider:
Context: Analyze the broader market trend and the stock's specific history.
Volume: While not absolute, accumulation typically sees rising volume, while redistribution may have lower or stagnant volume.
Confirmation: Look for confirmation signals such as breakouts above resistance for accumulation or breakdowns below support for redistribution.
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