Market Phase Analysis
or uninformed market participants tend to be extremely bullish at this point as
they get caught up in a buying frenzy, buying up all shares in the market at whatev-
er price available, popularly referred to as being in a state of irrational exuberance.
Margin debt is skyrocketing. The informed or smart market participants start
their campaign of selling off shares at these extremely advantageous prices, in
anticipation of a more bearish action. As before, this contrarian approach by the
informed participants helps create a final and decisive top in the market, with
very large responsive selling by the smart investors during the last stages of the
preceding uptrend (in the form of a blow‐off or buying climax) and subsequently
selling over a distribution phase. Smart investors continue to liquidate shares in
a very gradual manner during the distribution process, again, careful not to drive
down prices too rapidly so that they may continue to take advantage of the higher
prices. The distribution phase normally lasts a relatively shorter time than the accu-
mulation phase. This is due to the larger amount of capital (and unrealized profit)
at risk at higher prices, at the top of the market.technical aspects of Consolidations
Accumulation tends to have the following characteristics:■ (^) It generally occurs at the end of a relatively rapid decline in prices and ideally
in the proximity of a historical or significant prior bottom in the market.
■ (^) There is no evidence of lower troughs being formed.
■ (^) It represents the start of either a new primary bull market on a longer‐term
horizon (or a new shorter‐term uptrend if based on lower timeframes).
■ (^) Accumulations tend to last longer than distributions.
■ (^) Volume begins to subside as a potential upside breakout approaches.
■ (^) The longer the accumulation process, the more powerful the subsequent breakout
will be to either side of the range, typically accompanied by a surge in volume.
■ (^) Accumulations tend to experience lower volatility in contrast to distributions
due to the lower prices and consequently lower capital at risk.
Distribution tends to have the following characteristics:
■ (^) It generally occurs at the end of a prolonged uptrend in prices and ideally in
the proximity of a historical or significant prior top in the market. Signs of
market exhaustion begin to manifest.
■ (^) There is no evidence of higher peaks being formed.
■ (^) It represents the start of either a new primary bear market on a longer‐term
horizon (or a new shorter‐term downtrend if based on lower timeframes).
■ (^) Distributions tend to last for a relatively shorter period than accumulations.
■ (^) Volume begins to subside as a potential downside breakout approaches.
■ (^) The longer the distribution process, the more powerful the subsequent breakout
will be to either side of the range, typically accompanied by a surge in volume.
■ (^) Distributions tend to experience much greater volatility in contrast to accumu-
lation due to the higher prices and consequently greater capital (an unrealized
profit) at risk.