If you want to maximize your trading returns, then you must have an understanding of market cycle. Most of the traders either fail to recognize that markets are cyclical or forget to expect the end of the current market phase. You must have observed that the price of a stock never moves in one direction. It always move in a zigzag manner whether its an uptrend or downtrend or a sideways market. This Zigzag pattern shows that they are following a cycle called a market cycle.
Market cycle is composed of four phases:
1) Accumulation Phase:
This phase is also known as oversold phase. The innovators and early adopters begin to buy, figuring that the worst is over. They enter in the market and start accumulating the stock at the discounted price. In the accumulation phase, the prices will be flattened. At this phase, though the valuations are very attractive, the general market sentiment will be still bearish. Overall market sentiment begins to switch from negative to neutral.
2) Mark up Phase:
At this stage, the market would be stable for a while and then it will begin to move higher. This phase starts when accumulation phase gives a breakout. This breakout can be witnessed by a increase in volume. As this phase matures, more investors jumps in, following an uptrend. As this phase begins to come to an end, the market volumes begin to increase substantially. Here the valuations climb well beyond historic norms, and logic and reason takes a back seat. This phase witnesses the formation of higher highs and higher lows. Sentiment moves from neutral to bullish during the phase.
3) Distribution Phase:
The third phase of the market cycle will be dominated by the sellers. In this part of cycle the bullish sentiment of the previous phase turns into a mixed sentiment. Here, the bull loses its faith and bears take over. Distribution phase gives traders signal to sell or short. This phase could be witnessed by chart patterns like double top, head and shoulder etc. here, the traders who are unable to sell for a profit will settle for a breakeven or a small loss.
4) Mark down Phase:
This is the final phase in the market cycle. It is followed by fall in price. This phase will be painful for those who still hold positions. Here, the traders can witness the formation of lower highs and lower losses.
A market cycle can last anywhere from a few weeks to a number of years. It depends on a particular investor or trader, what horizon he is looking at. Smart traders who recognize the different parts of market cycle are more able to take advantage of them to profit. They are less likely to get fooled into buying at the worst possible time.
If you cant recognize the market cycle, then its better to take the help of the stock advisory company which provides sure shot intraday tips . They provide free stock market trading tips only after studying the market cycle of the stocks. Therefore they would be able to provide sure shot free intraday trading tips .
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