A distribution zone is a key concept in technical analysis, which is a method of evaluating securities by analyzing statistical trends and past market data. In the stock market, a distribution zone refers to a range of prices where large amounts of a security are being sold by professional or institutional investors.
During a period of distribution, large institutional investors, such as mutual funds or pension funds, tend to sell their holdings in a security. This increase in supply puts downward pressure on the price of the security and can result in a prolonged period of price decline.
Distribution zones can be identified through technical analysis techniques, such as trendlines, moving averages, and volume analysis. Traders and investors should monitor these zones to identify potential selling opportunities, as they may indicate a change in market sentiment and a potential trend reversal.
It is important to note that not all periods of distribution result in a trend reversal or a significant decline in price. However, distribution zones can provide valuable information to traders and investors when combined with other market indicators, such as economic data and earnings reports.