PostHeaderIcon Stock Market Cycle Phases

Market CycleOne of the more important aspects of trading and investing in stocks is by determining the market cycles. The stock market generally operates in certain market cycles- they go up, reach a certain peak, go down and then reach bottom. After one cycle, another new usually comes right after.

These market cycles can either be short-term that occurs only a few days or long-term, which can last years. But what stock traders and investors do know is that these market cycles have similar characteristics in that they have their distinct phases. Generally, market cycles tend to go through four phases. An idea on these different phases can help traders and investors make better trading decisions by watching out and timing their actions according to the market cycle.

Accumulation Phase

The accumulation phase of the market cycle usually occurs right after the market has bottomed out. This is the time when market insiders and some experienced traders begin to acquire new stocks, believing that the worst is over. Even though the overall market sentiment may still verge on gloomy and dreadful, there might already be some traders who begin to take advantage of the low prices despite the situation.

Mark-Up Phase

This phase may occur once the stock market has experienced some stability for some time. Stock prices begin to move higher and the market sentiment begins to improve. A majority of the traders and investors now begin to join in the bandwagon. Around the time this phase reaches its end, investors may already be trying to acquire more and more investments, fearing that they might be left out by the resurging market.

Distribution Phase

This phase is characterized by sellers beginning to dominate the market. This is the phase where previously bullish sentiments are slowly being mixed in with some measure of doubt. Many stock prices may steady at a particular range for weeks and even months. The distribution phase can either come and go quickly or they can linger on for some time. It is after this phase that the market cycle may be going on reverse.

Mark-Down Phase

The Mark-down phase is the final and the most unfortunate cycle phase in the market for those who still holds considerable positions. A lot of investors may still be holding on to their positions simply because the investments may have fallen below the selling price that they got them with.

Somewhere along this phase, many investors and traders realize all too late that their positions have nowhere else to go but down. It is only after the market has gone down further that the unfortunate ones realize their loss and they lose quite considerably. But on the other hand, the eventual decision to sell positions and admitting defeat that occurs overall becomes the signal for more experienced traders that the cycle may have reached it bottom. Hence, the next phase of the new marker cycle may be beginning anew.


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