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Distribution Days

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What is Distribution Day?

A distribution day is when a market representative index (for example, Nifty 50) loses more than 0.2 percent in a day, with volume higher than that of the previous session.

When a distribution day occurs, it hints that big institutional investors are exiting or reducing their positions in the market. Institutional activity is what moves any market, especially in India where retail participation is small.

How does it help in sensing market weakness?

When the market is in an uptrend, the intensity of market weakness is determined by the distribution day count. An investor keeps count of all valid distribution days (as per above definition) during an uptrend.

A distribution day count of 2-3 is benign and usually normal in an uptrend. But when the count goes to 5-6, one should prepare to get his/her positions trimmed.

Distribution Day Expiry:

ven though a distribution day hints that institutions may be liquidating their positions, it loses its impact after 25 trading sessions. A distribution day is also removed from the count after the index rallies 5 percent above that day’s close.
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