What is the meaning of accumulation and distribution phase in stock market chart?

There are certain cycles going on in the stock market which the experience traders can recognise and take advantage of it. Accumulation and distribution cycle is one of them and is one of the important cycles where the stock or share prices move up and down in a particular pattern.
Generally these cycles are triggered by the institutional buying of a particular stock. When there is a buying activity in a particular stock in a large quantity by institutional investors then it becomes an important event. This phase remains for some time because the institutional investors buy over a period of time and accumulate these shares in their kitty. Once this buying activity slows down then another phase starts in this cycle and that phase is known as markup phase. During the markup phase generally the market price of the share slowly starts rising up. This goes on for some time and then the cycle enters the distribution phase. During the distribution phase many people offload their shares and sell them and make a profit. This phase also remains there for sometime and generally the end of this phase triggers another phase known as markdown phase in which the market price of the share slowly decreases.
If a person can identify the accumulation and distribution cycle in the above manner than one can take some advantage out of it. In fact many mutual funds buy and sell shares in that fashion to make a profit for distributing to their unit holders.

As an individual investor one may feel that the share prices are random. But when we observe the changes in the prices of shares of a particular company over a period of time, the price cycles will be repeating. This repetition will be observed when institutional investors like mutual funds, banks, pension funds etc start investing in a particular period. The accumulation phase starts when these institutional buyers start buying the shares. They never allow the prices of the shares to go up sharply. Such a period is not good for retailers who want to buy and sell immediately for a good profit. People who wanted to buy and keep the shares for a long time can go for purchase during this accumulation period. If we purchase these shares and keep them for a long time our capital money may be tied down. During this accumulation period, the share price will move sideways only. A share has a price of 16 and may vary between 14 to 18 rupees but there will not be any sharp raise or fall.
The next phase is the distribution phase. During this phase, these institutional investors will be selling their shares over a period of time and they will try to see that the share price will not come down drastically during this period. This period is good for selling to a retail investor also.
A retail investor should try to purchase the shares of a company during its accumulation phase and sell them during the distribution phase.
There are very good articles written bu financial analysts on this subject and the author can read them if he is having interest and time.

Accumulation phase in relation to the stock market is a volume based parameter which indicates the relationship between the price of the stock and the volume flow to ascertain the trend of the stock. The term accumulation refers to the level of demand of the stock where as the distribution would denote to the level of supply. With these two terms, we can forecast the future price terms of a particular share based on its demand and supply cycle.
How to operate with these indicators?
The main concept behind Accumulation and Distribution cycle is that stock volume comes before prices. In other words, the number of shares traded are directly proportional to the stock prices rising and falling in the alternate ways. By going through this cycle, we can anticipate the price movements which could help us in understanding the future trend of a particular share.
We must ensure the following aspects while indulgence with the trading activities-
1) When both the indicators and the stock prices are on the higher side, we may anticipate that the upward trend will prevail.
2) If both the indicators and the stock prices have lower peaks, we may anticipate that the downward trend is likely to continue.
3) During the close interval, if the A/D line starts jumping, we may say that there is the trend of accumulation in the stock share.
4) If the A/D line is sliding, we may conclude that there is the distribution pattern of the stock.
5) If the A/D line shows lower highs but the prices are moving to a higher trajectory, we may conclude that there is the existence of negative divergence indicating reversal of downward trends.