Wyckoff distribution

Richard Wyckoff's market cycle has four stages: accumulation, markup, distribution and markdown. Distribution is the top of the cycle. A large position cannot be sold at one price without pushing the market down, so it is sold in parts, into the demand of buyers attracted by the uptrend.

On the chart that selling shows up as a range. Rallies stop making progress, volume rises on the declines, and the top of the range holds in spite of good news. It is the mirror of Wyckoff accumulation.

• Phase A – the uptrend stops. Preliminary supply (PSY) is the first notable selling. The buying climax (BC) is a wide, heavy-volume rally as late buyers rush in. The automatic reaction (AR) is the drop that follows. The secondary test (ST) returns to the area of the climax on lower volume. The high of the BC and the low of the AR set the range.
• Phase B – building the cause. Price swings inside the range while supply is passed to the public. An early upthrust or a brief dip under support can appear here.
• Phase C – the test. The upthrust after distribution (UTAD) is a move above the top of the range that fails and falls back inside.
• Phase D – the move to the bottom of the range and through it. The sign of weakness (SOW) is a decline on wide candles and rising volume. The last point of supply (LPSY) is the weak rally after it.
• Phase E – markdown. Price leaves the range and a downtrend begins.

An upthrust is a break above the high of the range that does not hold. Price trades over the resistance set by the buying climax, triggers buy stops and breakout entries, and closes back inside the range. In smart money terms it is a liquidity sweep of the range high.

The upthrust is the mirror of the spring. It gives large sellers the buying they need to finish, and it traps breakout buyers above the range. As with the spring, not every distribution has one – Phase C can be a lower high inside the range.

The sign of weakness is the first decline that shows supply in control: larger candles, closes near the lows, more volume, and a move to or through the low of the automatic reaction. The Volume indicator shows whether the declines carry more volume than the rallies.

The rally after it is the last point of supply. It is short, on narrow candles and low volume, and it often stops at the old support of the range, which now acts as resistance.

On Charts the rectangle tool marks the range, and Replay mode lets you go back through past tops candle by candle.

• Wait for Phase C – in Phase B the range still looks like a pause in the uptrend.
• Entry 1 – after the upthrust, when price closes back inside the range and a test makes a lower high. Stop above the high of the upthrust.
• Entry 2 – the last point of supply after the sign of weakness. Stop above the high of that rally or above the middle of the range.
• Target – Wyckoff used point-and-figure counts across the range. A simpler common estimate subtracts the height of the range from its bottom.
• Invalidation – a close above the upthrust high that stays there. The range is then read as a pause in the uptrend.

Both are ranges, and inside Phase B they look alike. The difference is where they form and how the tests behave. Distribution follows an advance: rallies fade on low volume, declines get wider, and the range resolves down. Accumulation follows a decline: lows hold on low volume, rallies get wider, and the range resolves up.

• Shorting every range after a rally – in a strong uptrend most ranges are re-accumulation and break up.
• Selling the first move above resistance as an upthrust – it is an upthrust only after price has closed back inside the range.
• Expecting the textbook picture – events can be missing or repeated. The schematic is a model.
• A stop inside the range – the last rallies of Phase D can come back above the broken support for a short time.