What is Distribution?
As with accumulation, distribution is a very specific process, simply put it is the process of distributing (selling) an asset at the desired (best) price over a time period. This is the direct opposite of accumulation where the market participants are looking to secure an asset at the lowest possible cost.
Typically we see periods of distribution after uptrends. The Composite Operator begins the lengthy process of distributing shares. This begins with the stopping action of a Buying Climax (BC).
Most traders find it easier to trade in a market that’s steadily rising. Bear trends and markets tend to be very punishing and short-selling is something that doesn’t come naturally to a lot of people. In that regard, distribution can be seen as a more difficult process to master and act upon.
One objective of the Wyckoff method is to improve market timing when establishing a position in anticipation of a coming move where a favorable reward/risk ratio exists. Trading ranges (TRs) are places where the previous trend (up or down) has been halted and there is relative equilibrium between supply and demand. Institutions and other large professional interests prepare for their next bull (or bear) campaign as they accumulate (or distribute) shares within the TR.
As with accumulation or any Wyckoffian range, how you would like to trade depends on your personal style. If you are a swing trader you may want to play the moves between the labels, if you are a scalper you have your boundaries established and can play within there, etc.
So let’s clarify a couple of points that are often lost when people discuss distribution as a process:
Distribution happens when equilibrium has been reached at price after an uptrend, where price stalls and begins to form a range.
Distribution occurs with greater accuracy and credibility on charts over 12h. HOWEVER. There are instances where volatile markets can show signs of distribution on much lower timeframes.
Volume is a key indicator of distribution (and accumulation) if you ever show me a Wyckoffian chart without volume, you’re doing it wrong.
After an uptrend, we’d look for signs of distribution or reaccumulation.
Distribution has a specific set of criteria that must be matched in order to add credibility to the range.
PSY — (preliminary supply), where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
BC — (buying climax), during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
AR — (automatic reaction). With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
ST — (secondary test), in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, the price often tests the lower boundary of the TR.
SOW — (a sign of weakness), observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
LPSY — (last point of supply). After testing support on an SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent an exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
UTAD — upthrust after distribution. A UTAD is a distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution Schematic #1 contains a UTAD, while the TR in Distribution Schematic #2 does not.
ICE — This is another concept that isn’t covered in all distribution schematics but I feel it’s worth covering. Accumulation has a Creek and when price crosses this creek it’s considering to be Jumping Across the Creek (JAC). The creek is a rough line drawn across the highs of the range that we expect to see broken on high volume to add credibility. Within distribution, we have a similar concept called ICE. Imagine this as a frozen lake, each footstep you take on the ice it becomes a little weaker. A rough line is drawn across the lows of the range instead for distribution, each time the price has touched it, it weakens and sooner or later the ICE will break and price (and you on the lake) will fall through.
As with accumulation, distribution is a very specific process, simply put it is the process of distributing (selling) an asset at the desired (best) price over a time period. This is the direct opposite of accumulation where the market participants are looking to secure an asset at the lowest possible cost.
Typically we see periods of distribution after uptrends. The Composite Operator begins the lengthy process of distributing shares. This begins with the stopping action of a Buying Climax (BC).
Most traders find it easier to trade in a market that’s steadily rising. Bear trends and markets tend to be very punishing and short-selling is something that doesn’t come naturally to a lot of people. In that regard, distribution can be seen as a more difficult process to master and act upon.
One objective of the Wyckoff method is to improve market timing when establishing a position in anticipation of a coming move where a favorable reward/risk ratio exists. Trading ranges (TRs) are places where the previous trend (up or down) has been halted and there is relative equilibrium between supply and demand. Institutions and other large professional interests prepare for their next bull (or bear) campaign as they accumulate (or distribute) shares within the TR.
As with accumulation or any Wyckoffian range, how you would like to trade depends on your personal style. If you are a swing trader you may want to play the moves between the labels, if you are a scalper you have your boundaries established and can play within there, etc.
So let’s clarify a couple of points that are often lost when people discuss distribution as a process:
Distribution happens when equilibrium has been reached at price after an uptrend, where price stalls and begins to form a range.
Distribution occurs with greater accuracy and credibility on charts over 12h. HOWEVER. There are instances where volatile markets can show signs of distribution on much lower timeframes.
Volume is a key indicator of distribution (and accumulation) if you ever show me a Wyckoffian chart without volume, you’re doing it wrong.
After an uptrend, we’d look for signs of distribution or reaccumulation.
Distribution has a specific set of criteria that must be matched in order to add credibility to the range.
PSY — (preliminary supply), where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
BC — (buying climax), during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
AR — (automatic reaction). With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
ST — (secondary test), in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, the price often tests the lower boundary of the TR.
SOW — (a sign of weakness), observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
LPSY — (last point of supply). After testing support on an SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent an exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
UTAD — upthrust after distribution. A UTAD is a distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution Schematic #1 contains a UTAD, while the TR in Distribution Schematic #2 does not.
ICE — This is another concept that isn’t covered in all distribution schematics but I feel it’s worth covering. Accumulation has a Creek and when price crosses this creek it’s considering to be Jumping Across the Creek (JAC). The creek is a rough line drawn across the highs of the range that we expect to see broken on high volume to add credibility. Within distribution, we have a similar concept called ICE. Imagine this as a frozen lake, each footstep you take on the ice it becomes a little weaker. A rough line is drawn across the lows of the range instead for distribution, each time the price has touched it, it weakens and sooner or later the ICE will break and price (and you on the lake) will fall through.