Market Stages in Price Action Trading

Market is not a good in Lets decode the Market stages in Price Action Trading in detail.

If you observe Market with a bulls eye, you will notice, market moves in different stages like accumulation, advancing, distribution, and declining. Every stage of market helps to decide the next move. Means if you know what stage the market is at, you don’t have to guess twice whether you should be buying or selling. Then let’s get started.

1.   Market Accumulation stage

An accumulation stage occurs after a decline in price, and it looks like market within range and it will go a downtrend. The logic behind this is the market can only go so low before the buyers step in and push the price higher.

When that happens, you will see traders selling in the downtrend and traders buying at low prices. When these two situation coincide, the market goes into an equilibrium, otherwise called as an accumulation stage.

Now, it’s called an accumulation stage because this is where the smart money accumulates their position in anticipation of higher prices to come.

Here are the characteristics of an accumulation stage:

• It occurs after the price has fallen over the last five months or more (on the daily timeframe).

• It looks like a range market with obvious areas of support and resistance within a downtrend.

• The 200-day moving average starts to flatten out.

• The price swings back and forth around the 200- day moving average.

Here’s an example of an accumulation stage:

Now, this is important. Just because the market is in an accumulation stage doesn’t mean it will break out Upside. It can also break down also. And if that happens, the downtrend resumes, as market is superior than us. Predicting a Trade is about probabilities, with certain accuracy, but not 100%. But if the market gives a breaks out above resistance, that’s where we can expect a next stage.

2.   Market Advancing Stage

The advancing stage occurs when the price breaks out of resistance (from the accumulation stage), which is otherwise known as an uptrend. This happens because the market can’t remain in a range forever. Eventually, one side of the market will dominate and that’s the start of a new uptrend (or the resumption of the downtrend).

So for an advancing stage to happen, the buying pressure must overcome the selling pressure, which leads to the start of a new uptrend.

Here are the characteristics of an advancing stage:

• It occurs after the price breaks out of resistance in an accumulation stage.

• You’ll see a series of higher highs and lows.

• The price is above the 200-day moving average.

• The 200-day moving average is starting to point higher.

Here’s what I mean:

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3.    Market Distribution Stage

A distribution stage occurs after an advance in price, and it looks like a range market within an uptrend.

The logic behind this is that the market can only go so high before the sellers come and short the markets.

When this happens, you’ve got traders buying in an uptrend and traders shorting at “high” prices. When these two forces collide, the market goes into an equilibrium, otherwise known as the distribution stage.

At this point, it’s called a distribution stage because this is where the smart money distributes away their position in anticipation of lower prices to come. Here are the characteristics of a distribution stag

• It occurs after the price has risen for the last five months or more (on the daily timeframe).

• It looks like a range market with obvious support and resistance areas in an uptrend.

• The 200-day moving average starts to flatten out.

• The price whips back and forth around the 200- day moving average.

It looks something like this:

At this point, there’s no guarantee the market will break down. But if it breaks below support, that’s where we move on to the final stage.

4.    Market Declining Stage

The declining stage occurs when the price breaks down of support (from the distribution stage), otherwise known as a downtrend. This is because the market can’t remain in a range forever.

Eventually, one side of the market will dominate, and that’s either the start of a new downtrend (or the resumption of the uptrend).

So for a declining stage to occur, the selling pressure must overcome the buying pressure, which leads to the start of a new downtrend.

Here are the characteristics of a declining stage:

• It occurs after the price breaks out of support in a distribution stage.

• You’ll see a series of lower highs and lows.

• The price is below the 200-day moving average.

• The 200-day moving average is starting to point lower.

Here’s an example:

Now you might be thinking, “What’s the point of learning these four stages of the market?” It’s this: If you can identify which stage the market is in, you’ll know whether to be a buyer or seller.

For example, if the market is in a potential accumulation stage, then you know there’s a huge potential upside if the price breaks above resistance, so you’ll want to look for buying opportunities.

Perhaps near the lows of support, the breakout of resistance, or the first pullback after the breakout, etc.

And if the market is in a declining stage? Then you’ll want to look for shorting opportunities, possibly towards an area of value like resistance, a moving average, etc. Can you see how useful this is?

Okay, to be honest. There will be times when the market structure isn’t obvious. So what do you do in this scenario? You stay out of that market. There are plenty of trading opportunities with “cleaner” market structure. So don’t force a trade if you don’t have a read on the markets. Most of the time you have to follow the Bearish reversal candlestick patterns to decide the downtrend.

Market Stages in Price Action Trading: Final Verdict

You’ve learned about market structure and you understand how the market really moves (with the help of the concepts from the four stages).

This means you know what to do in different market conditions, whether to buy, sell, or stay out of the markets.

However, market structure doesn’t tell you where to enter or exit your trades. I’ve saved that for the next chapter, so read on.

Market Stages in Price Action Trading: Conclusion

• An accumulation stage occurs after a decline in price, and it looks like a range market within a downtrend.

• The advancing stage occurs when the price breaks out of resistance (from the accumulation stage), otherwise known as an uptrend.
• A distribution stage occurs after an advance in price, and it looks like a range market within an uptrend.

The declining stage occurs when the price breaks down of support (from the distribution stage), otherwise known as a downtrend.