Why Phases Matter
A trading range is not a single event but a process. Splitting it into phases helps you decide whether to trade, wait or stay out. Early phases carry more uncertainty; later phases carry confirmation.
Phase A: Stopping the Prior Trend
The previous trend loses momentum. In accumulation, you see Preliminary Support, a Selling Climax and an Automatic Rally. In distribution, you see Preliminary Supply, a Buying Climax and an Automatic Reaction. Volume is typically very high at the climax. Avoid anticipating the final turn here.
Phase B: Building the Cause
Price oscillates between the range extremes. Large operators build positions while retail interest fades or reverses. Expect false breakouts, tests of both edges and gradually lower volume. Trading this phase is for range traders only, with small size.
Phase C: The Test
In accumulation this is the Spring or test of support; in distribution it is the Upthrust. The purpose is to find out whether the opposing side still has strength. A clean test with a quick recovery is the first strong evidence for the next trend.
Phase D: The Trend Declares Itself
A Sign of Strength or Sign of Weakness moves price decisively through the range, followed by higher lows (Last Point of Support) or lower highs (Last Point of Supply). Volume expands in the direction of the move. This is where many trend traders find their first entry.
Phase E: Trending Out of the Range
Price leaves the range and the new trend develops. Pullbacks respect the former range edge. Manage positions with trailing stops, and watch for a new structure forming as the cycle repeats.
Tip: always ask which phase you are in before you ask what price will do next.