Pre-Alert Bespoke Indicators

Accumulation Pre-alert 

The Basics

Accumulation Pre-Alert: Default values (set 34 days, 3% drop, 1% volume)

With the broad underlying trend of global equity markets being bullish, the Accumulation Indicator is designed to detect increased buying activity in stocks that are trading at a discounted value, have met support levels, or there is some ‘knowledgeable’ buying. Due to the nature of the signal, looking for short-term sell-offs that are then met with unusually high volume, the indicator is most successful in periods of market strength and, when used in conjunction with the Conductor indicator, will often identify appropriate entry points at price troughs or positive long-term reversal points.

The accumulation indicator can be used as a tool for sieving the stock universe for both short and long-term opportunities, and as an indicator. The concept underlying the accumulation indicator is that unusually large sell offs that are accompanied by relatively large volume are worthy of your attention.

Indicator Type

Trend following system

Markets

All equities, not options

Works Best

Trending markets

Parameters

The parameters of this indicator are:

Analysis period

The longer the period the more cautious the alerts. Smaller settings, on smaller capped stocks are not recommended, as the selections can be volatile. The larger the settings the more conservative the selections.

Volume

This is a measure of the increase in volume relativity that is required before the indicator will be triggered. You need to be looking at stocks that have large volume as it indicates to us liquidity and the possible participation by the larger players. The volume needs to be over a number of days and this should alleviate us being alerted to just one volume spike.

Percent drop

This is the percentage drop in the price that is required to trigger the indicator. The fall is to be over a number of days and the setting used is the minimum drop in price required.

Below is an example of what the Accumulation indicator is looking for.

Theory

The indicator in the analysis period is looking for a particular pattern. As you can see the pattern in the figure below has a level of support identified by the analyser and part of the search criteria looks for a break in that support. Once the shares with this pattern have been found the requirements of volume and percentage drop are calculated. If the share meets with all the requirements you are alerted to it.

Interpretation

The Accumulation Indicator alerts you to shares that have been moving down, so you must wait until the stock finds a level of support. As you can see in the diagram below, the share price moved down for one day (This is not always the case, as the days can be more than one) before starting its run back up.

On the chart you can see the recognizable pattern with the increase in volume and percentage drop in price. As the stock is still in a downward pattern, you place the share into a watch list and wait for it to exhibit signs that the buyers are beginning to purchase the stock. In other words, wait for support. At this point you may even do some research on any fundamental factors that might be impacting.

The chart below is of the same stock, only further on in time, and you can see that by using the TP at the bottom left, it gave an indication as to where the share was likely to find support in the future (see Turning Point Indicator). *Remember that it is only a guide.

With a likely level of support identified, you need to draw a resistance line across the peaks of the downtrend so that you have an indication of when the share has changed its most recent trend.

Having been alerted to the stock and now with increasing volume, a previous support level providing support again and a break in the resistance you have the makings of a potential trade. Remember to always use stop losses though, in case the share turns around.

If the indicator appears a multiple of times it does not mean the stock is likely to run further than if only one indicator was present, but it is a fair indication that the share may be approaching a level of support as the same settings are working over a number of days. i.e. the share has not moved down or up enough to move outside the required boundaries. It may be coming into a time of stability or Accumulation.

Summary

The Accumulation Indicator is an alert that makes us aware of shares that are decreasing in price that have the potential to provide trading opportunities over several time periods. The weakness of the accumulation indicator is that the signals can be very premature. Of course, the strength of the indicator is that the signals are very fast in alerting the trader to start monitoring a situation and be ready for when the institutions come out to play.

Appropriate entry points at price troughs – Positive long-term reversal points.