Phases of the market - The "AMD" Effect In trading, the terms accumulation, manipulation, and distribution represent distinct phases of market behavior, driven by the strategies of large institutional players such as banks, hedge funds, or market makers. These phases reflect how these entities operate to achieve their objectives while influencing market psychology and price movements.
At the core of these phases lies the concept of supply and demand. However, recognizing where these phases occur within the market is crucial for traders. Let’s break them down for better understanding:
Let us breakdown these terms to understand them in a better way :
1. Accumulation Phase : This is when big players, like banks or hedge funds, start buying a lot of shares of a stock or asset without causing the price to rise too much. They do it quietly so that others don’t notice what they’re up to.
The price tends to remain flat and trades within a narrow range since fewer trades are happening. A lot of traders tend to loose the plot here since they are unable to understand if this accumulation is occurring in the wholesale area or the retail area and this is the KEY!!!
If prices are accumulating in the wholesale area it is more likely the prices are going to push to the upside than downside. This phase is generally ignored by most retail traders and investors as they consider this as a dull market environment. This is highlighted in a yellow rectangle on the chart.
2. Manipulation Phase : This is a phase where big players intentionally create sharp price swings to confuse or scare smaller traders (retail traders). The goal is to trick people into making the wrong moves, like selling too early or buying at the wrong time. Usually the big players create sudden spikes to the upside or downside. These spikes in general trend to hit majority of the stop losses of the retail traders causing them to loose money more frequently. Many smaller traders lose money here because they react emotionally or fall for fake signals, not realizing they’re being played by smarter, bigger players. This is highlighted in a blue rectangle on the chart
3. Distribution Phase: This is the stage where the big players move the market significantly to the upside or to the downside depending upon the prices being in the wholesale or the retail section. This phase generally tends to have higher volumes. Majority of the retail traders tend to enter at the very end of this phase and get trapped in the market. This is highlighted in an orange rectangle on the chart
This cycle often repeats itself forming the basis of the Wyckoff Market Cycle. Since price is fractal in nature these phases occur on all time frames. For illustration purposes we have taken an example of a Nifty chart. I have manually plotted the phases of the market and illustrated how these phases play out however these phases can be coded using pine script as well. I have divided the swing high and the swing low in two parts.
The lower section signifies" wholesale area" where the big players would be buyers and the upper section signifies retail prices where the big players would be sellers. Now if you watch the wholesale area carefully all the manipulations are taking place in the downward direction(highlighted in blue rectangle) which is signifying that prices are moving down first before moving up. The retail trader is getting trapped in the false breakout to the upside and the moment that happens he wants to "Buy" and keeps a stop loss below the consolidation only for the stop loss to get triggered first and then price moving in the intended direction.
Similarly, in the "retail area", manipulations often occur in the upward direction (highlighted in the blue rectangle). This means prices initially move higher before reversing downward. Retail traders frequently fall into the trap of reacting to a **false breakdown**. When prices appear to break down, these traders rush to "sell" and place their stop-loss orders above the consolidation. Unfortunately, their stop-losses are often triggered first, only for the price to then move in the intended direction afterward.
This pattern is a common occurrence in the market, happening almost daily. It underscores the importance of understanding these manipulative moves to strategically place stop-loss orders in safer locations.
Relying solely on market phases to make trading decisions is not enough to ensure consistent success. Instead, combining this knowledge with an understanding of the **bigger picture**—the overall price structure and market context—is essential. Once this framework is established, traders can confidently apply any price action strategy for entry and exit points.
With practice, identifying these phases on your charts becomes much easier. I hope you find this information valuable, and with some effort, you’ll be able to spot these patterns regularly. Good luck, and happy trading!
