Market cycle ; all you need to know about market phases

 

From seasons to different stages of life, there are all kinds of cycles around us. These cycles in each of their components are often influenced by countless factors. Financial markets are no exception to this rule, and each cycle affects price movements in the market. Understanding how these moves work can help the trader identify new opportunities in trading and reduce risk.

In the following article from CoinMarketSIG , you will learn about the four main stages of the price cycle in the cryptocurrency market and in the financial markets in general.

 

Types of price cycles in the market

Price movements in the market often seem random and complex. Prices may rise or fall on certain days. For a newcomer, these movements are often confusing and may seem like gambling.

The fact is that the price cycles move in the same way and go through the same steps. Once an investor understands these steps, other markets will no longer seem so random. The trader can identify each step and change his trading style accordingly. You can see the four stages of the price cycle schematically in the chart below.

 

Accumulation phase

This stage of the cycle can be formed for a specific asset or markets as a whole. As the name of this stage suggests, it does not have a definite trend and appears in the chart as a period of price density and accumulation. As traders begin to accumulate their assets, prices begin to fluctuate within one range and between two levels. This transfer of ownership will continue until one of these two levels is broken.

Accumulation phase is also known as price formation period; as it is after a downward trend and before the ascent. Given that the market is not following a particular trend at this stage, moving averages will not issue a valid signal during this period.

 

How to trade in this phase?

The accumulation phase may take weeks or months. So use this time to study the market and predict the right time to enter. The range of price fluctuations in this period is small and is not particularly profitable for daily traders. Therefore, it is not recommended to make big trades until the market trend is confirmed. A fundamental stimulus, such as an increase in market value or trading volume, can take the price out of this stage. With the price leaving this phase and starting the upward trend, we will see the growth of price support and resistance.

 

Mark-Up phase

As price resistance to define accumulation phase change, ascending phase is identified by price movement above resistance levels. Leaving the accumulation phase leads to the inflow of a large amount of capital. Since traders who were in the off-market, accumulation phase began to buy assets aggressively. As the ascending phase progresses, we see the formation of price trends. As new traders start investing, price movements will attract more people to the market. Eventually, these factors will shape the uptrend in the price and gain strength until the price enters the next phase.

How to trade in this phase?

This phase is the best time for a trader to make money. There is a lot of movement and momentum that provides suitable opportunities for traders. Any price drop in this period is seen as a correction and an opportunity to buy an asset or stock. As prices rise, assets are repurchased and the market continues to rise again. As prices rise at this stage, market fluctuations gradually decrease.

 

Distribution phase

This stage is also known as the price return stage. Traders who have purchased the asset during the accumulation phase will begin to exit the market in this phase. One of the prominent features of this stage is the increase in trading volume. The point is that in this phase, demand will not exceed supply and prices will not increase as volume increases. Price corrections usually occur in the Distribution phase; yet they will not change the market trend downwards.

 

How to trade in this phase?

At the beginning of this stage, there are many fluctuations due to the withdrawal of investors from the market. This phase provides a good opportunity to start short positions. The price reacts quickly to support and resistance levels at this stage. The distribution phase is characterized by distinct graphic patterns such as head and shoulders, twin ceilings, triangles and other types. As you progress through this phase, the price will lose its volatility and will start moving within a range.

 

Downward trend phase

This phase is the last stage of the price cycle, which is tedious and unfavorable for one-way market investors. Traders, on the other hand, who buy assets during the distribution phase, are in a hurry to sell or close their loss-making buying positions. Due to the fact that there are few buyers in the market at this stage, the lack of demand lowers the price of the asset. As prices begin to build consecutive floors and higher, the market will once again reach the stage of accumulation.

 

How to trade in this phase?

At this point, asset prices will usually fall more than expected. Therefore, do not try to catch a falling knife; because eventually you will cut your hand. Of course, falling prices can also benefit the two markets. However, with the right strategies and strategies, a good opportunity will be provided for buyers at the end of this phase.

 

The difference between the phases of accumulation, distribution and consolidation

As mentioned, in the analysis of market cycles in a classical way, the stages of accumulation and distribution are examined. We said that the accumulation stage is the time when buyers enter the market. They take possession of falling assets, or so-called accumulate and accumulate; because they believe this trend will change soon. The accumulation phase represents the purchase of an asset or stock from shareholders who have lost faith in an asset or stock that is in a declining phase.

The distribution phase occurs when the accumulated assets are sold in the accumulation phase. As prices rise, shareholders offer their assets for sale. The more shares offered, the more difficult it will be to continue the price increase trend. This phase marks the end of the uptrend.

In addition to these two stages, the consolidation phase occurs when the price downtrend slows down. The price starts to fluctuate near a particular level and stays afloat. This period manifests itself in the form of narrow clusters of price fluctuations. The price in this phase has small jumps and corrections and its movements are transverse.

Consolidation in the downtrend is a sign that the accumulation phase is forming. In the uptrend as well, consolidation appears in the form of a price bar on the chart. In fact, in the uptrend, this phase is not called price consolidation. However, it has similar features. The price eventually stops moving upwards and fluctuates in width. This is a sign of the formation of the distribution phase.

 

The Presidential Cycle

One of the best examples of the market cycle phenomenon is the impact of the four-year presidential cycle on the stock market, real estate, bonds and commodities. The theory behind this cycle is that economic sacrifices are usually made in the first two years of the presidency. As elections approach, governments are accustomed to doing whatever they can to stimulate the economy so that voters can go to the polls with jobs and a sense of economic prosperity.

Interest rates are usually lower in election year, so experienced mortgage brokers and real estate consultants often advise clients to plan their mortgage maturities just before election.

 

How long does a market cycle last?

There is no simple answer for this question. A complete market cycle is usually defined as the period between two peaks. In other words, a bull market, then a bear market and then another bull market.

The exact time of change of these cycles cannot be predicted, which is challenging. What we do know is that historical trends show that stock prices are constantly rising.

This means that a long-term, planned strategy can be important because you focus on your investment goals and you do not have to do all this yourself. Talk to a consultant to help you create the right strategy for your needs.

This information is general in nature and is intended for informational purposes only. For specific situations, you should consult with the appropriate legal, accounting or tax consultant.

 

In conclusion

Understanding each stage of the price cycle is essential to deciding whether to buy or sell an asset. A good way to look at these steps is to study the past trend of the asset chart. In addition, examining the behavior of indicators in each phase will help to better understanding the market.

The accumulation phase is the first stage of the price cycle, a phase in which prices fluctuate within a range. In this phase, we have to wait for the uptrend to start.

The price then enters an uptrend, ‌ this phase is the best time to buy assets or stocks. Then we will enter the distribution phase, which is the best time to take the position of shorts in the two-way markets.

The downtrend is the last stage of the market price cycle. The end of the downturn phase is the best time to re-enter the buying positions.