Wyckoff trading method, page-2650

Hi @RogerRamjet

OK this is going to be a bit confusing, as it is nuanced, so I will just try to keep this as simple as possible - and while both accumulation and absorption can and do take place in all timeframes, I will generally just talk about 'Daily' timeframes today.

Firstly, I am possibly being a little pedantic pushing the difference between the two principles of Accumulation and Absorption.
But I sorta feel like if you are going to learn this stuff, it is best to know the differences between them, especially when you are speaking to someone about them, or writing commentary for others to read.

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In the most basic terms an Accumulation is the building of an (initial) position in a financial instrument, whereas Absorption is a trading technique or style.

Most commonly an accumulation takes place at a (major) low point of a stock chart (it can be slightly different in a futures market, which we won't get into here).
An accumulation is usually done on down bars initially, often beginning with some form of climactic action which then moves into a sideways trading range, prior to a breakout.
An accumulation usually has a certain basic shape, which you get an eye for over time.

Just to confuse the issue a bit, absorption can take place within an accumulation, because it is just a trading technique or style.
Once however the accumulation is complete, the breakout has taken place and the mark-up phase has begun - accumulation is not generally considered to be taking place during any periods of absorption (even though there is buying involved) - because the accumulation is considered to have already been done, and the absorption is taking place to remove supply to allow price to move.

In the actual Wyckoff trading course there is a principle called 're-accumulation'.
This refers to a period where a minor distribution takes place after the first phase of mark-up, and then the original position is rebuilt again, before the mark-up resumes again. This is different to absorption, and may take place for various reasons.

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Absorption can be either 'the buyers absorbing the supply from the sellers' or 'the sellers absorbing demand from the buyers'.

Absorption is a trading technique or style used to remove supply (or demand) form a certain price level,
usually to clear the way for price to move higher (or lower) with increased ease.

To differentiate between the two, just saying or writing 'absorption' is considered to be 'buyers absorbing the sellers', and the latter is said or written in full "the sellers absorbing the buyers".

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Below is pretty close to a "Text Book" or Classic Accumulation Zone.
It begins with some form of climactic action. Price then moves into a sideways range while more stock is accumulated and supply is mopped up (a form of absorption), then price breaks out.
This is the classic shape of an accumulation zone- 'down, across, up'.
In the real world an accumulation can take all sorts of shapes and sizes.
Within this accumulation zone I can see absorption taking place a couple of times, can you ??



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I marked the obvious periods of absorption on the same chart below
In the first box I marked drew a rough wave with a thin red line to make it more clear (the waves show periods of buying and selling, which can be compared to each other, to judge the strength of the market).
Inside the first green box you can easily see that the market spent a greater time moving lower than it had done previously.
Because it traded lower for longer, that down wave is considered to have increased 'effort' or force.
But for all that increased effort, price did not (or could not) push below the previous lows.
That was because the market was actually quietly buying (absorbing) any supply being drawn out, so while the chart 'looked' a bit weak, the fact that price didn't breakdown further, was actually a sign of underlying strength. This period of absorption was likely done to continue accumulating more stock.
The second green box has numerous smaller signs of absorption taking place within it, and was likely being done to remove supply at the highs of the trading range, prior to an attempted breakout.
The most obvious signs are - a little reversal (shakeout), then a buy the offer bar (absorption bar), followed by the push up to the highs of the range.





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Hopefully that helps, and I didn't confuse too much

Let me know if you have more questions, or if you want to go deeper than this.

cheers

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