If the price looks like it is entering the latter stages of a distribution phase, traders can take an aggressive entry to benefit from it. However, it is paramount to use a tight stop-loss since the price may break out to the upside or the downside. They may consider shorts when the price is rejected at the top of the range and longs when it is rejected at the bottom. If the 200-day moving average is flattening and the price has not rallied in the last three to six months, traders can identify the highs and lows of the consolidation phase. There are several strategies for traders to trade a distribution phase. The Best Strategies to Trade Distribution The move may end in climatic action that mirrors the buying climax to the upside. This is another opportunity for experienced traders to add to their shorts. The breakdown below support levels may be tested by a rally that fails around the support. In phase E, the downtrend is visible, and supply is now in total control of the price action. All the smart money has closed its long positions at this point. This phase may be accompanied by several weak rallies that get exhausted by late preliminary supply (LPSY). In phase D, the price starts testing support and eventually breaks it. Several upthrusts may occur during this phase, but depending on demand, they may not even reach the previous buying climax. It also serves for bigger investors to gobble up the short positions of smaller players. Beginner traders get wrong-footed by this move, as well as the public that interprets it as the first step towards a new uptrend. This is the last remaining demand and is also known as a bull trap. In phase C, an upthrust may test the supply before it reverses and remains back in the distribution zone.
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