Because institutional investors and large funds hold large positions (> 1 million shares), they cannot close their positions with a single sell order because doing so will draw attention to the stock, causing other market participants to sell their positions as well.
It's important to remember that institutional investors want the highest price to close their positions because their primary goal is to maximize profits, which is why they spread out the distribution phase over time rather than emptying their position in a single day.
The institutions' plan of not to sell their entire position in a single session furthers their goal of selling at high prices because it misleads retail investors into believing that the stock still has room to rise, and the retail side begins buying (increasing demand) while the institutions are selling (exiting at high price).
This is referred to as a buying climax. (From the institution's perspective)
How can we us retailers identify distribution?
Long legged and candles with high volumes can be seen in the chart above near the of 665-685 levels.
High and ultra-high volumes indicate the presence of large funds (Mutual-funds, Pension-Funds, etc.).
Observing the candle and the candle in conjunction with their respective high bars as highlighted indicates that institutions are selling at high prices of 665-685 levels which has been tested several times.
This is a good time to sell stock and take profits, but some retail investors are starting to buy now, expecting prices to rise even further!
Sometimes, it's also referred as bull-trap!
The mark-down phase follows the distribution phase.
Prices begin to decline and make lower lows and lower highs during this phase as institutions begin to book profits.
The mark-down phase is also marked in the chart.
It is best to avoid buying during the markdown period, as prices tend to decline sharply in this phase.
This was an educational post to help you better understand the distribution phase, and possibly avoid being trapped on the wrong side of the trade.