How Accumulation Distribution Can Benefit Your Trading

Trading volume is what moves stock prices up and down.

If a stock is being sold off, the price usually goes lower.

If buyers are hot on a stock and they're buying all over the place the stock price goes up.

Pretty simple.

But now I want to dig a little deeper with you and add another dimension to your knowledge and understanding of what moves prices up and down. So let's take a look!

This will also help you to spot a good entrance place for a trade or maybe even where you start looking for an exit to on your trade.

What I'm talking about is the current accumulation distribution of a stock or sector or even the whole market.

Bill O'Neil was an incredible trader from the late 1900s till early this century.

He understood supply and demand principles of the stock market.

What he needed was a way to quantify that demand and supply factors.

He came up with accumulation distribution scale.

What is the accumulation distribution scale?

Every company has a certain number of shares that they've authorized to be traded.

And what the accumulation distribution is measuring is those shares that have been authorized andmany of those shares are actually bought and in the hands of investors.

He uses a scale of A to E.

A meaning not much stock is available because investors have pretty much bought it all up.

And E meaning lots of shares are available because only a few of them are in the hands of investors.

The scale also includes plus and minuses for each letter grade, further defining the status of that stock.

Experienced traders now have a clue about the opportune time to buy in and sell off.

For example, if a stock has an accumulation distribution, let's say a D+, and you saw it move to a C, that means investors are starting to buy in and probably going to push the stock price higher.

You want to buy in with them.

Now I get a lot of traders that ask for my advice.

They see a stock just zooming up and they want to get into the action.

But I stop myself and I always check the accumulation distribution.

If a lot of buyers are already in the stock and let's say the AD score is already an A I would probably pass on that stock.

Likewise, if the stock is becoming scarce then fewer and fewer trades are available.

Let me say that again. The stock is becoming scarce and fewer and fewer shares are available to trade.

When I was a kid, I collected pennies and I was always a lookout for a very rare 1909 penny.

Because there were so few of these minted the price was really really hard, and they were scarce.

Even though the price was very high, not many of them were traded and so that stock or the penny price became very static out there.

Well the same is true in the stock market.

Once a number of shares are in the hands of investors and there aren't a lot of more shares available, the price kind of stabilizes and starts trading flat.

And this is a point where a lot of traders will say it's time to get out and they'll start selling off and taking profits.

Many times it starts a whole stampede of selling and the stock price drops.

By now you've figured out I'm a pretty darn good trader. And those of you that are in my DATA class and watch me trade live every day see me double my income about every 10 weeks.

I'm passionate about trading. I love it.

But I'm more passionate about passing along my knowledge and years of experience to you.

Trading has changed my financial life.

And I would love to see it change your life too.

If you're fairly new at this game of option trading, sign up for our Options Trading Beginner's Blueprint! It will set you up to start trading options with ZERO risk so you can learn the skill of options trading.