What Is the Accumulation Phase?

The Accumulation phase is the stage at which the institutions anticipate great potential in undervalued security and start building up their position. They cannot buy their entire position in one single order as the volumes of the security would shoot up, resulting in the market noticing unusual activity. Therefore, they buy these securities in tranches to avoid getting detected by the market participants. At this stage, the security has been under a strong downtrend, triggering a bearish sentiment around it causing the institutions to be able to buy the security at a very attractive price.

What Is a Market Cycle?

In the weekly chart of Spotify above, we can clearly see the accumulation phase.

The accumulation phase started after a strong downtrend, which took Spotify from $195 to $100 - the level where the market bottomed out. At this point, investors started accumulating their position in Spotify. 

As we mentioned earlier, the accumulation phase can last for a longer period as well which was the case for Spotify as it consolidated from 2019 to mid-2020. Traders would have stepped in once a breakout was seen in May 2020, however, they would have had to buy Spotify at a higher price of $200 as compared to value investors who got to accumulate near $100 to $140.