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Distribution Stage is the 3rd stage of the 4 stages of the stock market. By this time, the retail investors are heavily invested in a stock or index and big players or smart money is ready to book their profits as they bought during the accumulation stage. Distribution Stage might last for a few days/months or even for the years.
During Distribution Stage, the retail investors are under impression that it is just a consolidation phase of an uptrend and once this consolidation is over, the stock or index will resume its uptrend.
During this stage of 4 stages of the stock market, a channel is formed and you can check the ratio of no of days stock or index closed in green to no of days stock or index closed in the red. If this ratio is less than 1 then an investor or trader can safely conclude that it is distribution stage else it is consolidation during an uptrend.
Some of the signals are that Simple moving average becomes flat and you might observe a Doji or Marubozu candle on the chart. The stock might be near its multi-year resistance. All these are signs of the end of the distribution stage. During this phase, you can trade with the help of Bollinger Band and at the end, you can short the stock or index. There is no buy trade during this period.
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