|Market Cycle||Steps To Start Trading||Technical Analysis||Stock Analysis|
|Support and Resistance||Futures||Options||Price and Volume|
|Highs and Lows||Trends|
What is Market Cycle?
The price of a stock never moves in one direction and in one fashion. Observing charts of a stock or any financial instruments shows that charts always move in a zig zag manner whether its an uptrend or downtrend or a sideways market . On carefully observing those zig-zag patterns reveals that they are not just moving in an haphazard way, rather they are following a cycle called a market cycle.
It is very important for a trader to know the market cycle as it will help in guiding the possible entry and exit points of a trade.
Components of Market Cycle:
All market follow the same cycle that is they go up, follow peak, then go down and then form a bottom.This is called as market cycle and after one cycle another cycle will follow and this will go on. There are basically four phases of Market cycle. They are:
1. Accumulation: Accumulation phase is formed at the bottom or near the bottom of a chart. This is also known as the oversold phase. Here the long term investor (smart and experienced) enter in the market and start accumulating the stock at the discounted price.They feel that the worst bearish phase comes to an halt and sooner or later the bull will take over the market. In accumulation phase the price do not move much, rather it is neutral (flattened).
Accumulation gives traders signal to buy or long.
2. Mark Up: This phase starts when the neutral accumulation phase will gives a breakout witnessed by an increase in volume. Here other traders and investors jumps in, following an uptrend. This phase is also witnessed by the formation of higher highs and higher lows. Mark up phase also gives traders signal to buy.
3. Distribution: This phase forms the top part of the cycle. This phase is the saturation phase where bulls looses its faith and bears takes over. This is also known as oversold level. Here buyers gives over and seller comes into play making the price falls. Distribution is witnessed by other chart patterns like double top, head and shoulder etc. Mark Down gives traders signal to sell or short.
Distribution gives traders signal to sell or short.
4. Mark Down: This is the last phase of the cycle and is followed by fall in price till another accumulation phase is reached. In this phase traders can watch formation of lower highs and lower lows.
Duration: Market Cycle may be as short as few minutes to weeks and may last longer like few years. It depends on a particular investor or trader what horizon he is looking at and comfortable with for trading.
We also recommend to read How volume plays an important role in finding different phase of market cycle along with this text.