Market Cycles and Phases

Like in our life, where we pass through different phases and cycles; so do the stock markets move in different phases and cycles.

- Praveen Pathiyil

Today let us discuss the different phases and cycles of a stock market and how to encash from it. Understanding the phases and cycles of a market is quiet important as one knows when to enter and more importantly get out of the market before a big crash. Despite many theories and many well written publications are available regarding this subject, we often find people getting caught in a downward market phase.

The Four Phases

The four phases of stock market cycle are similar to that of a business cycle or to that of our lives. We start off with a slow approach, accelerate peak and then finally diminish ourselves. Most importantly, we can witness this same set of phases getting repetitive, especially in stock market; and thus technical analysts believe in fractal way of understanding the markets. These cycles do repeat at shorter time frame, intermediate time frame as well as on the larger time frame thus making it a fractal.

Thus all markets are cyclical. They go up, peak, go down and then bottom out. When one cycle is finished, the next begins. In summation, we can call these four phases as accumulation phase, growth phase, distribution phase and decline phase.

Most investors and traders either fail to recognize these phases and get struck. When they fail to identify the phase of the cycle they are risking their hard earned money.