The Accumulator

The Accumulator is the PINK line


Using our software is not intuitive. These are not just wavy lines you can follow without any knowledge of how to use them. As with any tool, you need to be trained in how to use our software and that is best done in our Trading School. We have trained hundreds of traders to become more successful using our #SPY75 learning program that teaches you how to know WHEN and in WHAT DIRECTION to trade.


Real Time Price Bars

Accumulator #1: 'Buy/Sell'

Accumulator #1 "Buy/Sell": Accumulator #1 looks for specific types of trades that are identified as pure buying or selling. It also scans for block trades and determines whether these trades are buys or sells. Audio alerts can be configured for 4 separate buy and sell block size ranges which are then continuously monitored.

This Accumulator works best for GLD, GOOG and many less liquid stocks or those with moderate daily volume. In a normal market, as price rises, any Accumulator should rise, as price falls, any Accumulator should fall. Trading opportunities are created when the Accumulator diverges from price especially at highs or lows, as well as "extensions" which then set up reversals. Here, note the Accumulator declined as price rose into the highs just before 12:30. Also, seeing it accelerate up or down as price is flat, also indicates buying or selling.



Real Time Price Bars

Accumulator #1: 'Buy/Sell'

Accumulator #2 "Market Pressure": Accumulator #2 measures the change in demand for an issue. We take as a given that supply is constant and that it's the change in DEMAND for an issue that is relevant.

This Accumulator is the default one to typically start watching on any security and it is often used in combination with the two other Accumulators which measure trades. Opportunities are identified through divergences as well as extensions which create reversals.

Resist the temptation to visualize a diagonal line drawn across the lows of the Accumulator line and instead visualize horizontal lines drawn at highs or lows of the Accumulator line to determine if there is a net increase or decrease in demand between price ranges. Here we can see multiple examples of demand increasing as price moves lower within its range for the day.

Real Time Price Bars

Accumulator #1: 'Buy/Sell'

Accumulator #3 "Liquidity": The Liquidity is our bread and butter Accumulator for many issues. Pure and simple, it measures buying and selling and trades are identifed as divergent ranges appear as well as with extensions in the Accumulator at highs or lows (reversal setups).

This Accumulator works especially well with SPY/QQQ and shows divergences better than any other Accumulator. This chart shows the Liquidity with QQQ. Note that they started selling at the highs around 11am (point a) and sold the rise just past 11:30 (point b) creating a divergent short range back to those lows which subsequently traded back out. Note they sold the balance of the day. Identifying divergent ranges is the most powerful aspect of the Liquidity Accumulator and it takes time and practice to learn how to use it.



Based in part on my experience as a wholesale market maker and then portfolio manager from 1983-1998, I designed the Accumulator to identify 3 different types of activity that can be derived from information on the consolidated tape. The Accumulators are calculated in real time across 9000 issues and each tells you something different about how an issue is being traded between two points in time.

The Accumulator was designed for trading intraday ranges using 1 minute price bars. Accumulators provide real time charts on 1 minute, 5 minute and 15 minute time frames. 1 minute charts are used for trading intraday ranges. 5 and 15m charts are used for swing trading.

Not all Accumulators work for all symbols. You must use them to best determine which Accumulator is predictive for a particular symbol. Why? Because not all securities trade the same, hence not all Accumulators will be equally predictive on each symbol. Watching an individual issue for a few days will tell you which Accumulators provide tradable divergent ranges and extension reversals.

The Accumulator should be used along side your existing charting systems. While they can be used independently, the Accumulator was not designed to be used exclusively of other analytics. Once you define a range, the Accumulator will tell you whether support or resistance will hold or fail.


The Basic Accumulator Trading Setups


What They Do: Divergence and Extension

In a normal market, you would expect to see price and the Accumulator rise and fall together. But when the Accumulator diverges from price, you are seeing a major shift that will lead to a reversal in price.

Positive Divergence:

When the Accumulator rises as price falls, as shown below, the Accumulator is identifying buying into a low or support level. The rising Accumulator has identified accumulation into price weakness, "buying into the lows". This is called Positive Divergence and a reversal in price will follow.


Real Time Price Bars

The chart is annotated. Note the red colored 'program bars'? These are called Flip Color Expansion Bars (FCEB) which are identified by the software as red/green price bars. FCEB's are caused by aggressive program trading which the Accumulators can identify. FCEB's trade back out when the Accumulator shows divergence during them. This is an extremely reliable trading setup which we teach users to identify in our SPY75 learning tool.



Negative Divergence:

When the Accumulator falls as price rises, as shown below, the Accumulator is identifying selling into a high or resistance level and is the opposite of positive divergence.

Real Time Price Bars

In the example above, we see multiple divergent ranges and note the two 'stacked' FCEB's at point a. Note also the number of flip colored price bars indication during the period shown, there was a great deal of program activity.



Extension:

When the Accumulator spikes up or down very sharply within a single bar or two, this is an indication of an exhaustion in trend and it takes time and experience with the Accumulators to recognize them. Extension means there's too much volume coming in at once and prices are stretched, then typically reverse. Panic selling or buying, "people throwing the baby out with the bathwater", algos running limits through obvious levels--these are all actions that typically create extensions.

Real Time Price Bars

We seek V bottoms very often on an Accumulator in the absence of a divergent range for reversal setups. Recognizing extensions only comes through experience with an Accumulator/Symbol pair. Note in this example how price moves a bit lower after the Accumulator extended, then reversed.






Algos and Dark Pools


For the transactional Accumulators (the Buy/Sell and Liquidity), we can separate out trades run by Algorithmic trading systems and Dark Pool venues from the 'full feed' main Accumulator. This allows us to see what these other market participants are doing which can at times lead to additional trade setups.

Real Time Price Bars

This is the Full Feed GOOGL Buy/Sell Accumulator (above). It contains the 'full feed' and is used to buying or selling, divergent ranges and extensions. It contains everything that is on the tape including Algo and Dark Pool trades along with retail and everything else.


Real Time Price Bars

This is the GOOGL Buy/Sell Accumulator filtered for Algo trades (above). Algo systems are very disciplined in that their programming isn't subject to the emotional considerations you or I may be subject too. Algos trade the obvious ranges and they don't think to themselves at highs or lows, "I think I can get more from this trade so I'll hold off taking a profit." We all know how that ends. Steve Hammer Conundrum #1: "When I try to trade for more I end up with less."


Real Time Price Bars

This is the GOOGL Buy/Sell Accumulator filtered for Dark Pool trades (above). Retail does not have access to Dark Pool venues because they are not institutions, nor do they have the account sizes required for entry. Entities using Dark Pool venues have much longer term time frames than any other market participant, although this is not the case across ALL dark pool participants. Depending on the day and the current market environment at the time, following Dark Pool Accumulators can lead to excellent trading opportunities. It takes time and experience using ANY Accumulator. You can't simply see a spike up on an Accumulator and assume you can hit the buy button and immediately profit.