Jul 5 2017 11:38 am

What are Distribution Days?

In this article, we will take a look at distribution days in order to be warned in time of falling prices.

For a long time, the stock markets have only been going in one direction: UP. So the question arises whether there are certain signs indicating an end to this rally. First of all, let's look at the charts of the S&P500 and the DAX in recent years:


As you can see, since February 2009, both indices have increased by more than 200%.

Generally speaking, the end of a bull market is much more difficult to recognize than the end of a bear market, because euphoria is much more difficult to measure rationally than fear and panic. Of course, we want to show you a few criteria in the next few weeks, which you can continue in the future as a guide.

Distribution Days

Distribution days are as the name suggests days of distribution. Ideally, the price development and the volume should be consistent. If a discrepancy is established here, this is a first warning signal.

For this purpose we look at the price development and the related volume. If the market drops by at least 0.2% and the volume is increasing compared to the previous day, then we have a distribution day. Of course, not a single distribution day is sufficient, but they must show up in a short time. How does the current situation look like:


In the recent past we had within 22 trading days there were 7 distribution days! In short: Be careful!

The MFI indicator as a warning signal works similarly to the distribution days. If you want to learn more, we recommend our free course Technical analysis - Working with indicators.

High 2000 – 6 Distribution Days

But what did the picture look like before the crash in 2000? Let's take a look at the price chart and volume:


As you can see, there were 6 distribution days within 15 trading days.

High 2007 – 5 Distribution Days


Within 23 trading days, there were 5 distribution days.

High 2015 – 9 Distribution Days

Most of you will probably remember the Minicrash from summer 2015:


In just 20 trading days, there were 9 distribution days. Caution was necessary.

Conclusion

As you can see, it is worth paying attention to distribution days to forecast upcoming price drops. Either one protects his portfolio, reduces the positions or even take advantage from falling prices.

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