The distribution schematic: the topping structure, phase by phase
The distribution schematic is the bearish mirror of accumulation. It is the structure a large operator leaves while unloading a long position into a range at the end of an uptrend, selling into the public enthusiasm the markup created. It runs through the same five phases, A through E, but with the roles of supply and demand reversed: stop the advance, build a cause of supply, test the high, show weakness, and mark down. This module draws the whole schematic on gold; the next details every event. The key skill is that distribution is harder to read than accumulation, because tops are emotional and messy.
The schematic overview
Distribution runs through five phases in order. Phase A stops the prior uptrend. Phase B builds the cause, the sideways churn where supply is fed out. Phase C tests the high, often with an upthrust after distribution. Phase D shows supply taking control as price works down toward the bottom of the range. Phase E is the markdown out of the range. The structure mirrors accumulation flipped upside down, but it tends to be choppier and more deceptive, because the public is excited at tops and false breakouts to new highs are common. Reading it needs patience and a firm grip on the law of effort versus result.
Phase A: stopping the advance
Phase A ends the uptrend. It contains preliminary supply (PSY), where the first significant selling appears and the rise slows; the buying climax (BC), a wide-range, high-volume up bar where eager public buying is met by heavy selling from the operator; the automatic reaction (AR), a sharp drop as demand is suddenly spent; and a secondary test (ST) back up toward the BC high on lighter volume. The AR low and the BC high now define the range. Phase A is where you first suspect distribution, because the uptrend has been halted with a visible climax and a sharp reaction.
Phase B: building the cause of supply
Phase B is the sideways middle where the operator feeds out the position. Price swings between support and resistance, frequently with wide, choppy bars and false moves in both directions that make tops so frustrating. Volume stays high and erratic rather than quietly declining as in accumulation, because distribution happens amid excitement, not boredom. Secondary tests of the high in Phase B often show supply arriving: upthrusts that fail, and rallies that cannot hold their gains. The job here is to notice that strength is being sold, that each push up is met and turned back.
Phase C: the test of the high
Phase C confirms distribution, often through an upthrust after distribution (UTAD): a push above the range resistance that fails to hold and closes back inside, the mirror of a spring. The UTAD traps breakout buyers and the last bulls, then price rolls over. Phase C can also present as a final rally that simply fails at resistance. It is the highest-conviction part of the bearish schematic, because an upthrust that fails tells you demand above resistance is gone and supply is in control. As with springs, not every distribution has a textbook UTAD, but when one appears it is the signal to prepare shorts.
Phase D: supply takes control
Phase D is where supply visibly beats demand and price works from the top of the range toward its bottom. It shows a sign of weakness (SOW): a wide-range decline on expanding volume that breaks support or the internal structure. Rallies in Phase D are last points of supply (LPSY): lower highs on weak demand that fail at or below the broken support, now acting as resistance. The LPSY is the textbook short entry, combining a confirmed change of control with a tight stop just above the lower high. The chart's character turns clearly bearish here.
Phase E: the markdown
Phase E is the markdown: price leaves the range and trends down, making lower highs and lower lows. The distribution is complete and the operator, now flat or short, no longer supports price. Rallies become redistribution, brief pauses that refresh the decline rather than a return to the range. On gold a Phase E markdown can be fast and sharp, because the public that bought the top sells in a hurry. The job in Phase E is to hold and manage the short taken in Phase C or D, with a target from the top-formation count, rather than looking for premature reasons to call the bottom.
FAQ
What are the five phases of distribution?
Phase A stops the advance with preliminary supply, a buying climax, an automatic reaction and a secondary test. Phase B builds the cause of supply through choppy churn. Phase C tests the high, often with an upthrust after distribution. Phase D shows supply taking control with a sign of weakness and last points of supply. Phase E is the markdown.
Why is distribution harder to read than accumulation?
Because tops form amid excitement rather than boredom, so the action is choppier and more emotional. Volume stays high and erratic instead of quietly declining, and false breakouts to new highs are common. It takes patience and a firm read of effort versus result to see that strength is being sold.
What confirms distribution in Phase C?
Usually an upthrust after distribution: a push above resistance that fails to hold and closes back inside, trapping breakout buyers. It is the mirror of a spring and tells you demand above resistance is gone. A final rally that simply fails at resistance can serve the same role.
Where is the best short entry in the schematic?
In Phase C on the upthrust after distribution, and in Phase D on a last point of supply, the lower high that fails on weak demand after the sign of weakness. Both offer low-risk entries because the stop sits just above a level the schematic says should hold as resistance.
How is the automatic reaction different from the automatic rally?
They are mirror images. The automatic rally is the sharp bounce up after a selling climax in accumulation, setting the range resistance. The automatic reaction is the sharp drop after a buying climax in distribution, setting the range support. Both show the prior pressure has suddenly exhausted.