Charting & TA Ch2

Question 1

What are the 3 phases of Primary Trends?

Answer 1

1. The Accumulation phase
2. The Public Participation phase
3. The Distribution phase

Question 2

The Accumulation phase

In an Advancing Market

Answer 2

In an advancing market, The Accumulation Phase occurs when astute investors start buying stocks at low prices from sellers who are under duress as the economic news is still bad and is often at its worst. Trading activity is usually still moderated during this phase but is starting to increase.

Question 3

The Public Participation phase

In an Advancing Market

Answer 3

As the Accumulation phase materializes in an advancing market a new primary trend moves into what is known as the Public Participation phase. This phase is usually the longest lasting of the 3 phases. This is also the phase you want to be invested in, an advancing market.

During this phase, earnings growth and economic data improve and the public begins to tip-toe back into the market. As the economy and the related news improve, more and more investors move back in, and this sends stock prices higher.

During this phase the market expereinecs a long-term advance while the primary trend moves higher with secondary trends (pull-backs) along the way. These advances can last several years.

Question 4

The Distribution phase

In an Advancing Market

Answer 4

In an advancing market, this phase is the one that seems to always catch investors and traders unaware. The market has been in an advancing primary trend, and many think it will continue to move higher….

Dow correctly named this phase becuase of the trading activity going on during this phase. Remember the smart money buyers who were ‘accumulating’ during the accumulation phase, buying while there was blood in the streets? They are the ones selling in the distribution phase. The investors and traders that are often caught unaware are the ones normally doing all the buying during the distribution phase, buying from the smart money investors and traders.