Richard D. Wyckoff, a stock market trader and technical analysis originator, developed the Wyckoff distribution as a price action trading strategy. The Wyckoff distribution theory is based on the idea that large investors, or “smart money,” are responsible for market manipulation and that these manipulations can be detected through price and volume data analysis.
The market goes through four distinct phases, according to the Wyckoff distribution theory: accumulation, markup, distribution, and markdown. As the smart money gradually liquidates its position and transfers ownership to the general public, the distribution phase is characterized by a series of rallies followed by price declines. During the distribution phase, the smart money's goal is to sell their holdings at the highest possible price and distribute them to market participants.
Traders who employ the Wyckoff distribution strategy look for price and volume patterns that indicate a distribution phase in the market. These patterns may include indicators of weakness, such as decreased volume on price increases and increased volatility on price declines. Traders should also look for breakouts from key support levels, which can signal a shift in market sentiment and the start of a new trend.
Chart Source: stockcharts.com