Distribution
Definition
Distribution is a market phase where large institutional investors sell their positions over time, typically during a period of consolidation near a market top. It is characterized by a trading range with increasing volume on down moves. The distribution phase precedes a markdown (downtrend) phase in Wyckoff market cycle theory and often appears as a flat or slightly declining price ceiling.
Related Terms
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Bull Market
A bull market is a market condition characterized by rising prices, optimism, and strong buying pressure. It is typically defined as a sustained price increase of 20% or more from a recent low. Bull markets are driven by strong economic fundamentals, positive sentiment, and increasing investor confidence. Traders in bull markets primarily look for buying opportunities on pullbacks.
Bear Market
A bear market is a market condition characterized by falling prices, pessimism, and strong selling pressure. It is typically defined as a sustained price decline of 20% or more from a recent high. Bear markets are often associated with economic downturns, negative sentiment, and risk aversion. Traders in bear markets look for shorting opportunities on rallies.
Consolidation
Consolidation is a period of sideways price movement where the market trades within a defined range without establishing a clear trend. It occurs when buying and selling pressures are balanced. Consolidation often precedes a breakout and is characterized by decreasing volatility. Traders either trade the range boundaries or wait for a breakout to establish new positions.
Range
A range is a price area bounded by a clearly defined support level (floor) and resistance level (ceiling) where the price oscillates back and forth. Range-bound markets lack a clear trend and are ideal for oscillator-based strategies. Traders buy near support and sell near resistance, or wait for a breakout from the range to signal a new trend.
Breakout
A breakout occurs when the price moves decisively above a resistance level or below a support level, often accompanied by increased volume. Breakouts signal the start of a new trend or the continuation of an existing one. False breakouts (fakeouts) occur when the price temporarily breaks a level but quickly reverses. Confirmation through volume and candle close helps filter false signals.
Pullback
A pullback is a temporary price movement against the prevailing trend, offering potential entry opportunities in the trend direction. In an uptrend, a pullback is a brief decline before the price resumes its upward movement. Pullbacks differ from reversals in that they are shorter-lived and do not change the overall trend. Fibonacci retracement levels are commonly used to identify pullback targets.
Retracement
A retracement is a temporary reversal in price within a larger trend, where the price moves back toward a previous level before continuing in the original direction. Retracements are measured using Fibonacci levels (23.6%, 38.2%, 50%, 61.8%). They are distinguished from reversals by their shorter duration and the expectation that the primary trend will resume.
Reversal
A reversal is a change in the overall direction of a price trend, where an uptrend turns into a downtrend or vice versa. Reversals are identified through chart patterns (head and shoulders, double tops), indicator signals (divergence), and candlestick patterns. Distinguishing between a genuine reversal and a temporary pullback is one of the most challenging aspects of technical analysis.
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