DistributionStockCharts.com Definition
The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security’s shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices.
When the market wants to drop the price, it must perform a distribution process. You get peaks, double top, head and shoulders, are distribution processes. There are only 2 mechanisms to move the market. Accumulation to go up. Distribution to go down. It happens in tick charts, timed charts and volume charts.
According to Mr. StockCharts. “After an advance, a stock may start forming a top and trade sideways…”
When do distribution processes occur?
After an advance…
What will you see?
May start forming a top and trade sideways.
Mr. StockCharts.com is correct again with his definitions. In this tick chart you see how well defined the sideways movements are to help you identify the distribution process.
But Mr. Kewltech sir. The definition also states and I quote. “The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period.” How do you sell without affecting the price significantly?
Distribution suggest that something is being dispersed. What is being dispersed is bullish volume. “After an advance, a stock may start forming a top and trade sideways…” In its place, an accumulation of bearish volume. “The systematic selling of a security…”
In order to offset the bullish volume, the incoming bearish volume is absorbed and thus the price is not significantly affected. Why is there a need to offset the bullish volume? Because we just saw an advance in price. Therefore a massive influx of bullish volume. Until the break out where the volume of bears is able to overcome the volume of bulls, we see the effects of distribution, thus lowering the price.
Accumulation and Distribution is the Ying Yang of the market. The market cannot do anything without setting up these too primal mechanisms to move the price up or down. Unless something catastrophic happens, the effects of the news is always pre-staged. Somebody knew before the news was made fully public.
Don’t rely on the news to trade. Watch the technicals. Not funnymentals.
Its in the chart.
[…] Distribution StockCharts.com DefinitionThe systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security’s shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices. […]