Price Action Analysis: Understanding the “Boom-Accumulation-Dump” Mix in Trading
Every price movement in the market follows specific rules that are reflected in three main phases: Pump, Accumulation, and Dump. To understand these phases in depth, we can break them down into interconnected steps that reveal how the market interacts between buyers and sellers.
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Stage 1: Pump
What is happening?
This is the phase of a rapid rise in price, often due to sudden strong demand or positive news that pushes liquidity into the market.
Buyers enter in droves, leading to sharp price movements due to the lack of sufficient supply.
Long green candles usually appear on charts with a large increase in volume.
Main Features:
1. Strong momentum: a continuous rise in price without major corrections.
2. Increased volume: indicates the entry of new money.
3. Market sentiment: strong greed and high expectations.
What to do:
Do not buy at the tops at this stage, as the price has already exceeded its fair value.
Wait for signals for correction or entry into the next stage (accumulation).
Stage 2: Accumulation
What is happening?
After each sharp rise (pomp), the market needs to absorb the momentum and rebalance between buyers and sellers.
This stage is characterized by a sideways movement (Consolidation), where the price trades in a narrow range.
During this period, large investors (whales) accumulate assets at low prices in preparation for a new big move.
Main Features:
1. Narrow price range: The price is moving between relatively stable support and resistance levels.
2. Low volume: a clear decrease in activity compared to the pump phase.
3. Repetitive behavior: This pattern often appears after a major uptrend and before a new uptrend or downtrend.
What to do:
At this point, a buy entry can be made if indicators indicate that the upward momentum will continue after the breakout.
Use technical analysis to determine the future trend: if there is a break of resistance with strong volume, the trend is up; if the support is broken, the currency may enter the dump phase.
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Stage 3: Dump
What is happening?
After stabilizing in the accumulative phase, the market may face strong selling pressure that will push the price to a rapid decline.
This phase is known as profit taking or heavy selling by whales.
They are often driven by feelings of fear or sudden negative news.
Main Features:
1. Sharp decline: Long red candles reflect panic and mass exit.
2. High Volume: Activity increases dramatically due to heavy selling.
3. Breakout of support levels: A decisive breakout of key support levels reinforces the bearish momentum.
What to do:
Do not try to buy during a sharp decline. Wait for clear signs that the dump is over (such as a new bottom or a strong bounce).
Use stop loss to protect capital.
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How do these stages work together?
Integrated course:
1. Bomb: The price rises rapidly, supported by momentum and strong demand.
2. Accumulation: The market stabilizes, rebalancing in a certain area.
3. Dump: The market corrects, re-establishing new price levels and creating new entry opportunities.
The relationship between the stages:
Bomb leads to accumulation; buyers who missed the buying opportunity try to enter during the consolidation.
Accumulation precedes either a new pump or dump phase, depending on market conditions.
The dump brings the price back to strong support areas to repeat the cycle again.
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How are these stages applied in practice?
1. Monitor Volume: Increased volume during a pump or dump is a strong indicator of big moves.
2. Use larger time frames: such as 4 hours, daily, or weekly to better understand the cycle.
3. Analyze key areas: Identify support and resistance levels at each stage to determine the best entry and exit points.
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Summary: Decoding the Market with the Bomb-Accumulation-Dump Combo
Every price movement consists of these three phases. Understanding them and using them to your advantage means that you understand the market dynamics and act strategically. If you focus on timing your entry and exit based on this cycle, you will be better able to make profits and minimize losses.