Page 84 - A Complete Guide to Volume Price Analysis: Read the book then read the market

1. The accumulation phase

2. The technical trend following stage

3. The distribution stage

If this sounds familiar, then it should because this is the cycle the insiders follow in the constant round of first filling, and then emptying their
warehouses, as developed and expanded by Richard Wyckoff. Charles Dow referred to the insiders as the 'smart money' with the distribution
phase of the trend where the 'smart money' is taking its profits and heading for the sign marked 'Exit'.

Now at this point we are going to diverge from standard trend analysis and look at it in slightly different terms, which I hope you will find marginally
more useful when trading live, rather than the theoretical nonsense that appears Stha it in slin most books. The above introduction has given us the
framework to move on, but at this stage most trend analysis would then present you with the schematic in Fig 8.10

Fig 8.10 A Bullish Trend Higher – Surely Not!

Here we have the traditional picture of a trend. The market has moved higher in a series of steps, and once we have three steps in place, we can
draw our upper and lower trend lines, which define the channel clearly. Most text books will tell you that it is impossible to define a trend using two
points, since the possibilities for interpretation are endless and ultimately meaningless, which is why we have to wait for three points, before joining
them up to create the trend lines themselves.

These are the higher highs and higher lows which define the peaks and troughs as the market moves higher, and lower highs and lower lows as the
market falls.

Now we have a clear picture that a trend has been established, we are ready to enter the market, and wait for this trend to develop further. That is
the theory, but unfortunately, by the time we have waited for our three higher highs and higher lows, the trend is already reaching a climax. We have
already been through the technical trend following stage and we are about to buy, at the start of a distribution phase.

But how do we know this? Because most likely you have been reading too many text books written by people who have never traded or invested in
their lives. This is all theoretical and, as I said earlier, very easy to see in hindsight, and once the trend is this well developed, it is not of much use.

What is the answer? And for this we need to return to support and resistance which holds the key, and which is why I covered it in such detail in the
previous chapter.