What Is Distribution?
Distribution is the market phase where smart money — institutional investors and whales — gradually offload their positions to retail buyers. In the Wyckoff cycle, distribution follows the markup (uptrend) phase and precedes the markdown (downtrend). Price typically trades in a range as supply is transferred from strong hands to weak hands.
How Distribution Works
During distribution:
- Price makes marginal new highs that quickly get sold
- Volume spikes on down moves, declines on up moves
- On-chain: whale deposits to exchanges increase, exchange inflows rise
- False breakouts above the range trap late buyers
- The range eventually breaks down as sell pressure overwhelms
Why It Matters for Traders
Recognizing distribution early means exiting before the markdown phase. On-chain data is particularly valuable here: large transfers to exchanges, long-term holders reducing positions, and rising exchange reserves all signal distribution before price confirms it. The combination of price action (Wyckoff patterns) and on-chain flow analysis is the most effective way to identify distribution.