Distribution
Distribution is a market phase where informed investors sell their holdings to retail buyers before prices fall significantly. Price moves sideways or slightly up while smart money exits positions. It typically follows an uptrend and precedes a markdown (decline) phase.
Understanding the Concept
• Price makes lower highs while holding support (initially) • Volume often spikes on down days during distribution • Retail FOMO buying absorbs smart money selling • Can feature false breakouts to trap late buyers
Real-World Example
After rallying from $100 to $200, a stock trades sideways between $180-$200 for months. News is bullish, retail traders are excited, but volume surges on red days. Insiders file Form 4s showing sales. Eventually, price breaks below $180 and crashes to $120 as distribution completes.
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