Stock Trading Strategies During Distribution Phase

Distribution phase normally form at the top. Despite the wishes of it's shareholders, a company's share price can't increase forever. Often, this will occur with heavy volume and the presence of a phenomenon known as a volume climax. The share price surges on a day of above-average volume only to retrace and settle into a trading range.

This is the result of buyers who are bullish about the company being jostled by sellers who have entered the market much earlier and are looking to take their profits.

As the volatility reduces, the moving averages in the multiple moving average indicator begin to converge as the market reaches a consensus on the price of the stock. These averages may stay flat for a lengthy period of time.

I suspect that a downtrend may have begun when a stock penetrates the trading range low after making a lower high point.

Common chart patterns associated with this phase are:

• Double bottoms (or even triple bottoms)
• Head and shoulders
• Rounding tops
• Spikes
• Diamond tops

Your trading strategies can be similar during the accumulation phase . You can begin by taking profits in any open positions so as to protect your capital. You then can look to trade within the ranges until you gain evidence that either the range was a pause in an uptrend or that it was distribution and the market is moving its final stage, the downtrend.

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