What Is Wyckoff Distribution?
Distribution is the mirror image of accumulation. After an extended advance, a sideways range forms in which large participants gradually sell their holdings to an enthusiastic public. Price appears to hold up, but the quality of buying declines.
The range is the cause. When supply finally overwhelms demand, the effect is a markdown phase that can be as large as the work done in the range.
Key Events in Distribution
Not every distribution contains every event. Look for the overall sequence rather than ticking boxes.
- Preliminary Supply (PSY) — the first sign of heavy selling after an advance.
- Buying Climax (BC) — a surge of demand on very high volume that marks the high, often with a wide-range bar.
- Automatic Reaction (AR) — a sharp decline that defines the bottom of the range.
- Secondary Test (ST) — a retest of the high on lower volume, showing demand is weaker.
- Upthrust (UT) — a brief push above resistance that fails and falls back into the range, trapping late buyers.
- Sign of Weakness (SOW) — a decline through support on rising volume.
- Last Point of Supply (LPSY) — a weak rally after the SOW that fails to reach the highs.
Volume Clues That Matter
In distribution, rallies tend to show shrinking volume and shorter progress, while declines show growing volume and larger bars. A push to new highs on lower volume than the previous high is a classic warning.
Remember that high volume with poor upside progress is also evidence of selling into demand: the effort is large but the result is small.
How to Use Distribution
You can use distribution in two ways: as a reason to exit or tighten stops on long positions, and as a framework for short entries once weakness is confirmed.
The lowest-risk short entries usually come after an Upthrust that closes back inside the range, or on the LPSY after a breakdown. Place the stop above the Upthrust high and aim for the range low first, then the measured move.
Never short a strong trend simply because it looks extended. Wait for evidence of supply, not just a high price.
Distribution vs Reaccumulation
Both look like ranges at highs, which is why they are confused. Reaccumulation shows strong rallies on rising volume and shallow, low-volume pullbacks that hold support. Distribution shows the opposite. When in doubt, wait for a decisive break and a successful retest before committing.