Basic Points

• Accumulation represents a campaign to buy a large amount of securities (tradable investment products) within a certain period of time. 
• It happens to a security when a very large player or institution initiates a campaign to buy a heavy amount of it in a systematic manner.

Intermediate: Identifying Accumulation Patterns

Logically, accumulators would like to pay as little in slippage (losses from commissions and the bid/ask spread) as possible, which is why the buying is broken down into small pieces over time. Waiting for a while in between buy actions gives liquidity (price stability from a high amount of bids and offers) enough time to replenish itself, and at or near the same price points. But since we know that, large amounts of absorption (volume consuming liquidity without price movement) and stealth cashflow can help identify large institutional campaigns to buy or sell a large amount of the same security (or index) over time.

As another common sense point, accumulation campaigns would logically want to attract as little attention as possible. Otherwise, frontrunners (those trying to piggyback on or be faster or better than large orders) would want to buy (and be carried up) with the accumulation campaign. At the very least, speculators would want to come in long on the thesis that there is a protective bid minimizing the downside risk with the view that support is stronger than usual. Also, by acting in stealth, the liquidity is subject to less stress (because there is less competition to buy) and so there would be less total pressure on the ask to push the price up and hurt the accumulator’s average cost basis. 

Accumulation is further complicated by how it can be the net effect of multiple and conflicting campaigns; for example, five major institutions might unleash [bearish] distribution (large selling campaigns) while eight rival institutions enter into accumulation. If each accumulation/distribution campaign in this example has a comparable size and timeframe, then a net bullish effect would be introduced to the market. 

As traders, we have ways of being able to detect these imbalanced flows. From the accumulator’s perspective, as a method of stealth, it is standard for accumulation to use randomized size and spaces of time in between bids. This is done to prevent the accumulation patterns from being too obvious on the tape (time & sales). But this means that there are patterns to be seen here. In particular, time & sales can be observed carefully at major levels where accumulation appears to be unloading in the form of support. Sudden changes of patterns on the tape at these key levels can be indicative that accumulation is still strong.

Another way to assess accumulation is by watching patterns with intraday VWAP (volume weighted average price). Accumulation or distribution campaigns are known to favor VWAP as a measure of fair value. If the price keeps bouncing off of VWAP, or even above it, then day traders know that institutions are likely to be behind on their accumulation schedules, and willing to buy above fair value. Further, volume-weighted studies can help to show changes in the balance of accumulation and distribution, which include the Chaikin money flow, OBV (On Balance Volume), and the CVD (Cumulative Volume Delta).