What is Distribution?
Distribution is a phase where institutional investors and smart money are selling their holdings into buying pressure, often during periods of high volume and apparent price strength, before a significant decline.
Distribution Explained
Distribution is the opposite of accumulation and typically occurs near market tops. While the price may still be rising or making new highs, volume patterns show institutional selling. This phase is dangerous because the price action looks bullish, luring in retail buyers who become the 'bag holders' when the selloff begins. Key signs include increasing volume on down days and decreasing volume on up days.
Real-World Example
A stock hits a new 52-week high at $120 on heavy volume, but closes at $115 — a bearish reversal candle. Over the next two weeks, it makes marginal new highs but volume dries up. This distribution pattern suggests institutional sellers are unloading shares to eager retail buyers.
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