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Accumulation phase: if the market rises after consolidating, we say that the
consolidation represents accumulation (buying activity).
Distribution phase: if the market declines after consolidating, we say that the
consolidation represents distribution (selling activity)
The main issue arises when a trader tries to know whether this consolidation is
accumulation or distribution.
So how can we overcome that issue?
As a trader, we have to try to look for evidence that suggests whether accumulation or
distribution is taking place during consolidation and out of that evidence we will
discuss how we can use chart patterns to identify the phase.
Chart patterns belong to one of two groups, that is, reversal or continuation.
Example 2: An ascending triangle is intrinsically bullish , that is, it has a bullish bias.
Regardless of where this pattern occurs with respect to past price action, it will
always be inherently a bullish indication, but If this bullish pattern is found at the
price level of some historically significant market top/Resistance, then we say that it
is extrinsically bearish , cause the pattern is located at a significant resistance.
For example, The inverse head and shoulder pattern have an intrinsically bullish bias,
and it is also forming at a strong support location then its extrinsic bias is also bullish.
Like, If both are in alignment then we can say that this is an accumulation phase and a
long entry can be initiated.
##Intrinsically neutral formations, their extrinsic bias or sentiment is derived from the
trend sentiment. For example, a symmetrical triangle will adopt an
extrinsically bullish bias in an uptrend and an extrinsically bearish bias in a downtrend.