Possible Redistribution in UBER..!What is Wykoff Distribution Analysis?
Wykoff Distribution Analysis is a technical methodology developed by Richard Wyckoff in the early 20th century. It focuses on studying the distribution of trading volume and price action to identify potential support, resistance, and accumulation/distribution phases in a market.
The key principles of Wykoff Distribution Analysis are:
Volume Precedes Price: Trading volume changes often precede price direction changes. Analyzing volume patterns can provide clues about the underlying forces driving the market.
Climactic Events: Climactic volume spikes, either up or down, often mark important turning points in a trend. These are seen as "distribution" or "accumulation" events.
Phases of Activity: Markets tend to go through identifiable phases, such as:
Accumulation: A period of consolidation and gradual price increase on lighter volume.
Mark-Up: A strong uptrend phase on increasing volume.
Distribution: A period of consolidation and gradual price decrease on lighter volume.
Mark-Down: A strong downtrend phase on increasing volume.
Composite Operator: Wyckoff theorized the existence of a "Composite Operator" - a single, dominant entity (or group of entities) that controls the market's overall direction.
Applying Wykoff Analysis to Redistribution
Wykoff Distribution Analysis can be particularly useful for identifying potential redistribution phases in a market. Redistribution occurs when the "smart money" sells to the "dumb money" at the end of an uptrend. Some key signs of redistribution include:
Decreasing volume on up days, increasing volume on down days
Climactic volume spikes at market highs
A series of higher highs and lower lows form a distribution pattern
Divergences between price and momentum indicators
By identifying these distribution patterns, traders can look to enter short positions or reduce long exposure as the market transitions from an uptrend to a downtrend phase.
