Movement of the market
The markets are always moving, as a trader you also need movement otherwise there are no possibilities to gain profit by trading. The market is always moving up or down, even if it’s the slightest movement, it’s moving. As a trader you want to analyze the path the market is walking and based on your analyze you want to either accumulate a certain asset or distribute (buy or sell). In this lesson we will focus on accumulation and distribution, a cycle the market always is in.
Accumulating a certain asset is or holding a certain asset or purchasing a certain asset with a target in mind to sell. In the chart below we see a period of accumulation.
In the green period Bitcoin is getting bought with the intention to sell at a later stage. After accumulation there is following a move upwards as you can see in the chart.
So step 1 is accumulation, people are buying in this case Bitcoin with the intention to sell it at a future target. After accumulation follows the move upwards, because when people are buying Bitcoin it is driving the price up. After accumulation and the move upwards step 3 is following and that is distribution.
With distribution we refer to the period the asset is being sold. When traders accumulate Bitcoin, they have a target in mind when they want to distribute (sell) their Bitcoin. And that is very important because without any target you won’t be prepared for the expected movements and that will often cause a loss of profits. Let’s have a look at distribution on the chart.
The red field is showing the targets of the traders who accumulated in the green field. For any reason that has been the target to distribute the Bitcoins. Step 2 of distribution is a downward movement.
The cycle of the market
So with accumulation a asset moves up and with distribution a asset moves down. That is the cycle of the market 24/7. Assets are going up (accumulation) followed by a downward movement (distribution). In the following chart we can see a example of the continuation of accumulating and distributing.
At point 1 we see accumulation followed by a move upwards because people are buying Bitcoin which is driving the price upwards. At point 2 we see distribution as Bitcoin reached a certain target people are selling Bitcoin which is followed by a downward movement because when people selling Bitcoin the price is decreasing. After the downward movement of point 2 we seeing people accumulating Bitcoin (3) again and followed by a upwards movement till the target is met at point 4. Where we then see the distribution of Bitcoin with a decrease in the price. This is how the market works, people are accumulating which is effecting the price and distributing which is also effecting the price.
It is a very good example to see that there are always possibilities to gain profit in the market. It doesn’t matter if the market is moving up wards or downwards or is even in a downtrend as you can see in the image. Even in a downtrend there are ways to make profits when buying Bitcoin. So with every trade you make you need to know if you’re entering a accumulation phase or entering a distribution phase.
When to buy and when to sell ?
To know when you should buy (accumulate) or sell (distribute) you have to analyze the price levels of the asset in our case Bitcoin. We will go more in depth on price levels and target in the coming chapters but let me sketch a simple scenario. In the following chart we are looking at the daily Bitcoin chart.
As we can see in mid July we have touched the 6075 level (line 2) on the Bitcoin price. Here we have see a period of accumulation. After accumulating we see a upwards movement to the levels of $8500, the target is met and we see distribution. The price decrease to the same levels we have seen the accumulation period before and that is $6075. Now when we get a confirmation here (support), we know this is properly a accumulation phase and therefor a good time to enter and be patience. After almost 2 weeks we see the upwards movement into the direction of the target. The target is set on $7396 because it was our latest accumulation period (Line 1, 16-23 July) which is now acting as resistance.
This is a basic example of how accumulation and distribution works. To determine certain levels and targets there is often more research needed. But I hope you understand the point which I’m trying to make. Also realize that you need a lot of patience when trading. Every candle in the chart above represents one day and as you can see sometimes it could take 2 weeks to reach your target. This can be very heavy emotionally and mentally.