Reading an e-book found on this traders blog (a lot of good info to be found there). The ebook can be found here.
Here's an excerpt:
"The trick is to figure out whether this new "consolidation" period represents accumulation
or distribution, and the only way I know of to be sure is to watch the relationship between
price and volume. How does the stock react when a lot of stock is dumped onto the
market? Does it tank or does it decline only a trivial amount? Is there follow-through to
this action or are the following days business-as-usual? If it's a short, sharp decline with
no follow-through, you're probably looking at a "shakeout" (forcing weak hands to sell their
shares so the stronger hands can pick them up at a discount) or a spree of short-selling,
but the latter is unlikely since it usually takes place over time.
Another help is to draw a line parallel to the bottom of your price-and-volume graph so
that only the busiest days show above your line. Note what happens on the busier days.
Is the price up or down? What about the slower days? Again, price up or down? If the
price rises on heavier volume days (though not enough to break out of the base) and falls
on lighter volume days, the stock is most likely being accumulated. Or vice-versa if it's
being distributed. (emphasis added)
It is important to remember that for a transaction to take place, there must be a buyer and
a seller. Huge volume and an increase in price indicates a lot of buying, but it also
represents an equal amount of selling. Volume, in other words, reflects only the number of
shares traded. Whether the pressure is on the demand side or the supply side is reflected
in whatever happens to the price. Unless you put this activity in a context of markets,
market psychology, and demand and supply, you stand a good chance of misinterpreting
The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at firstname.lastname@example.org
I am always open to questions, comments, or suggestions on how to improve this blog.