Trading Phases

Trading Phases

When a trend is underway, the price rarely follows the same direction constantly, but instead performs oscillations; it takes breaks, then explodes into trend, then stops again.

These phases are defined in this way:

Accumulation
Rise
Distribution
Fall

Accumulation

In the first phase of accumulation, the price remains more or less stable and there are no accentuated movements in any one direction. In this moment, established traders with substantial capital are preparing for the next rise. They purchase slowly, to not let on of their intentions to smaller investors.

Rise

At a certain point, purchases will become more consistent as smaller traders gradually move along the same way following the good news.

Distribution

In this phase, the price returns to a standstill. Big investors are closing their positions in profit and this generates a slowing or halting of the rise.

Fall

At this point there is a wave of sales that have no counterparts and the price drops rapidly. In this moment the market is made up of many sellers and few buyers; the price quickly falls and so begins the next phase of accumulation and another cycle begins.

accu

In support of this, technical analysis uses the following; predictions made on price movement; price action signals; indicators like moving averages that also help to identify trends, types of Japanese candlesticks and their patterns and formations like harami, hanging man and hammer; and last but not least, support and resistance levels, also known as key levels.

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