Accumulation, Manipulation, Distribution also known as the power of 3 and AMD for short. This is a very common pattern, concept or a market cycle, whatever you want to call it. It happens in every market in existence and it is one of the main driving force of the market makers.
Accumulation is simply a consolidation phase within the market cycle. It is a range in price where early buyers/sellers enter the market. It is also a phase where market makers accumulate large amounts of orders before manipulating the price.
Prolonged periods of consolidation almost always guarantee a sweep of liquidity before pushing price in the anticipated direction. This is why you should always avoid entering trades if you spot a range that hasn’t broken to either side for a longer period of time.
During the accumulation phase, the market makers are buying and selling the asset at the same time, this is why price is kept in a very tight range. This accumulation usually happens around key levels in price, such a strong daily/4h low/high or a strong psychological level. As you can see in the example above, the price had a strong push to the downside and consolidated just above the daily low. Most traders would signal this as the price coming down to retest the previous demand zone and get trapped in buys while the market makers are patiently stacking orders to manipulate the lows and grab even more liquidity for a bullish move.
Manipulation also known as the “fake move” happens after the accumulation phase. This is where most traders get stopped out and market makers get to close their short trades and accumulate more buys with the extra liquidity they just created, pushing the price higher (Vice versa if it’s a bearish scenario).
Whenever you spot a prolonged range you can anticipate the manipulation and wait for the sweep of liquidity before looking to enter the trade. This way you avoid becoming the liquidity for the market makers during the accumulation phase. The manipulation phase also grabs extra liquidity by triggering the breakout traders who did anticipate a break to the downside but didn’t get to close their trades because of the sharp nature of the manipulation.
The manipulation phase often happens during high impact news as it’s one of the main ways to create a huge spike in liquidity.
The third phase in this market cycle is the distribution. It comes after the market created a fake move, stopping out all or most previous traders and pushing the price where it wanted to go initially.
The distribution phase usually has a very strong push in the desired direction breaking previous structures created by the manipulation and accumulation periods. At this point the market makers made their money on the way down and all the orders accumulated during the first phase are massively in profit. At this point other traders see the momentum and try to get in on the move helping the market makers push the price. That’s where the market makers start offloading their positions and that’s what creates that slow in momentum as price comes near a strong high.
Understanding the intentions behind the AMD market cycle will help you avoid unnecessary losses you would have taken during the first and second phase and potentially allow you to jump in on the massive momentum before the distribution phase starts.
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- Prolonged periods of accumulation almost always guarantee a sweep of liquidity.
- AMD is not used to predict the future, it is to understand the intentions and actions of the market makers so you can adjust your strategy accordingly.
- Finding entry opportunities during the manipulation/distribution phase is ideal.