An accumulation area is a term used to describe the price range that an investor is willing to pay in order to acquire larger blocks of a particular stock. The range is usually determined based on the typical movements of the market prices of the stock within a minimum and maximum range. The ability to determine an accumulation area is only possible if the purchase price of the stock is somewhat steady, rarely moving outside a measurable range. Attempting to identify the accumulation area for more volatile investments that tend to fluctuate wildly is much more difficult to manage.
The purpose of identifying the accumulation area related to a given stock is to provide some sort of guideline that aids in deciding whether or not to purchase any available shares currently offered in the marketplace. By taking a snapshot based on price movements over a defined period, such as the last full year of activity, the investor can get some idea of how the average price per share changed as various events affected the marketplace. The data provides a reasonable view of what to expect in terms of ups and downs with the stock price over a longer period of time, allowing the investor to decide if the shares should be purchased now, or if waiting a little while would mean acquiring them as a lower price and being able to sell them later at a profit.
Sellers can also use the concept of the accumulation area to their advantage. By understanding the combination of the trading volume and the prices that occurred when those trades took place, it is possible to project when the next round of higher prices is likely to occur. Using the data, the seller can then set a date for placing the shares on the market, selling them at what is hopefully a much higher price that the original acquisition and generating profits from the sale.
Since the determination of an accumulation area is based on how the shares perform in the marketplace, it is important to reassess the nature of that area from time to time. Doing so makes it easier to identify situations in which perhaps the upper and lower regions of the area have shifted a bit, events that could also impact when an investor should buy or sell that particular stock. Along with investors, financial advisors and brokers will also make use of an accumulation area to point out possible benefits of buying a certain stock, or help investors understand why the purchase may not be the best idea at present.
