Market Phase Analysis


After studying this chapter, you should be able to:

  • Understand the structural and functional characteristics of the three market phases
  • Forecast market phase accurately via its behavioral and cyclical properties
  • Identify potential market regime changes via volume action
  • Describe the inertial and momentum characteristics for each market phase
  • Identify specific price pattern formations associated with each phase
  • Compare and contrast Eastern and Western approaches to interpreting market phases

Markets move in phases. Not being able to recognize market phases and their transitions will greatly disadvantage the practitioner. Market phase analysis can be applied across all time frames, deciphering long as well as very short-term market behavior. Via the application of multiple time frames, market participants will be able to clearly identify macro phase behavior and its impact on more diminutive micro phase action. In this chapter, we shall learn to interpret market phase via a multitude of technical approaches, both Eastern and Western.


As we have learned from Dow Theory in Chapter 2, a primary bull or bear trend consists of three phases, specifically:

  1. Accumulation phase
  2. Trending phase
  3. Distribution phase

This description of how markets rise and fall in various phases is now generally regarded as the basic underlying characteristic of market action.

FIGURE 4.1 Components of Market Phase.

According ...

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