If you have ever invested money in the stock market or are thinking of investing, then one question must have come to your mind again and again – when to buy and when to sell stocks. Many people remain entangled in this confusion and get troubled by every ups and downs in the market. But if you understand how market cycles work, then finding the best time to buy stocks and when to sell stocks will become child’s play for you.
The market movement is not always straight – sometimes it runs fast, sometimes it stops, and sometimes it also falls suddenly. Understanding this is a real skill. Today I will tell you it’s an easy, interesting and true formula – so that the next time the market rises or falls, you do not get scared but can take advantage at the right time.
If you are even slightly interested in the stock market or any financial market, then you must have heard the name “market cycles”. But what does it actually mean? Let’s understand it in very simple language.
Market cycles are the natural pattern of the market, in which prices go up, then there comes a time when they stabilise, after that, they fall down, and then everything starts again. This entire cycle is called the market cycle. This is not a one-time thing – rather, it goes on all the time, in every market. You can understand it like the weather – like rain after summer, then cold, and again summer. Exactly in the same way, the stock market also keeps rising, stabilising, falling and rising again.
Understanding market cycles is important because, if you know which phase the market is in right now, then you can not only buy at the right time but can also earn a good profit by selling at the right time. Many professional investors and people with big money (whom we call smart money) do this – they recognise market cycles and make their strategy accordingly.
Now the question arises: why do these market cycles form?
The biggest reason behind this is the economic conditions of the country and the world. When the economy grows rapidly, companies get good results, unemployment decreases, and people start spending, then the market booms. This is called a bull market.
On the other hand, when inflation rises, interest rates go up, companies’ profits start decreasing, or a major crisis occurs somewhere, then people start selling shares out of fear, and the market goes into a recession. This is called a bear market.
Apart from this, government policies, global events (like war or pandemic), the rupee-dollar movement, and sometimes just people’s emotions also affect these market cycles.
That is, market cycles are not just lines drawn on a graph – they are actually a reflection of the economic health of the entire country and the world and the thinking of the people.
That is why, if you want to survive and win in the stock market, it is most important to understand the market cycles and also keep an eye on the economic activities. This is the difference between a successful investor and an ordinary trader in the crowd!
Market cycles are not just a matter of charts or theory. They can change every investment and trading decision of yours. If you know which phase the market is in right now, you will always know whether to buy or sell. This understanding makes the biggest difference between a good trader and a loss-making trader.
Now let us understand each phase in detail, one by one:
This is the phase when most people ignore the market. In this phase, the market calms down after falling – it neither falls much nor rises much. Smart money (that is, big and sensible investors) gradually starts collecting good stocks during this time.
Characteristics of this phase:
Stock prices remain stable, or there is very little movement.
Trading volume is very low; that is, not many people are active.
Neither is there much positive news in the media nor much negative news.
This phase is often the best time to buy stocks. During this time, fear and despair prevail, but smart people know that this is the best opportunity to buy cheap.
Now, suddenly, there is a stir in the market. The price starts to rise slowly, and people’s confidence starts to return. In this phase, first professionals and then common investors enter the market.
Special features of this phase:
Stock prices go up continuously.
Trading volume increases.
Positive news starts appearing in the media.
New investors also start buying.
This is the time when many people start trading, but it is wise that you have already bought in the accumulation phase. Most of this phase is also considered the best time to buy stocks, especially in the initial stage.
Now, the mood of the market starts changing. The stock prices have now reached a very high level. An atmosphere of mild fear and uncertainty starts building up in the market. People with smart money who had bought in accumulation are now slowly starting to sell their holdings.
Identification of this phase:
The prices of stocks become very volatile, up and down.
The volume becomes very high because many people are engaged in buying and selling.
News like “all-time high” or “market overvalued” starts coming repeatedly in the media.
This phase is the best time to sell stocks. It is wise to book a profit quickly from here because, after this, the market is more likely to go down.
Now the market has started declining. The prices of stocks fall rapidly; panic and restlessness spread. People start selling quickly to avoid their losses, which makes the fall even faster.
Identification of Markdown Phase:
Continuous price fall, day-by-day decline.
The atmosphere of fear and panic.
Negative news in the media, scary headlines.
In this phase, if you do not book a profit in the distribution phase, then it is almost certain that you will incur a loss. A bear market is seen in this phase.
Recognising the four phases of the market, such as accumulation, markup, distribution, and markdown, is the biggest strength of every trader. But the question is, how to know which phase the market is in? The answer lies in some of the best technical indicators, which you can easily see on the charts.
Moving Averages
The most popular and easiest indicator is the moving average. If the price of a stock or index is trading above its 50-day or 200-day moving average and is continuously rising, then understand that the market is in a bull market or bullish phase. On the other hand, when the price goes below the moving average, it indicates a distribution or markdown. It helps you a lot in catching the trend.
RSI is a tool that tells whether the stock is overbought (too expensive) or oversold (too cheap). If the RSI is above 70, then the stock or market is overbought, that is, in the distribution or selling phase. If the RSI is below 30, there may be a chance of accumulation. This will help you to quickly catch overbought or oversold conditions.
Both volume and price action reflect the mood of the market. If the price is going up with increasing volume, it is a sign of markup. On the other hand, increasing volume with falling prices is a sign of markdown. A sudden surge in volume and stable price can show the distribution phase.
With the help of these indicators, you can easily understand the market cycles and make the right decisions.
The real game of earning in the stock market is this – to buy at the right time and sell at the right time. Many people invest without thinking, just by looking at others, but those who take steps after understanding the market cycles become the real profitable traders.
The accumulation phase is the best time to buy stocks. In this phase, most of the people in the market are disappointed, there is an atmosphere of fear, and the price has fallen to a great extent. This is where big investors slowly start buying. After this, when the early markup phase comes, that is, the price slowly starts moving up, then buying is also beneficial. Stocks bought in both these phases give good returns in the future because the market sentiment gradually starts becoming positive.
When the market starts going up continuously, there is talk of the stock market everywhere on news channels, and people are buying shares unnecessarily – then you understand that you have reached the late markup or distribution phase. In this phase, huge profit booking takes place. It is in the distribution phase that big players slowly sell their holdings. This is the right time to book your profit by selling shares slowly because after this, the market usually starts falling.
In this way, by understanding the market cycles, you can enter and exit at the right time.
Most people do not make money in the stock market because they repeat some common mistakes again and again. The biggest mistake is emotional trading. Many people get scared of seeing the turmoil in the market and sell at a loss, or when the market rises, they get greedy and start buying without thinking. Both these approaches lead to losses. It is important that you control your emotions and show patience in every decision.
The second big mistake is ignoring macroeconomic indicators. Many traders make buy/sell decisions only by looking at charts and prices, but big economic news, such as changes in interest rates, budgets, or global events, has a huge impact on market cycles. If you ignore these factors, you will not be able to understand the real mood of the market.
So, while trading, neither be afraid nor greedy and always keep an eye on economic indicators. Only then can you be successful in market cycle trading.
Now that you have understood market cycles in such detail, always remember this before trading next time – don’t just follow the crowd; identify the phases. Buy in accumulation, sell in distribution, and never ignore the bear market. Develop your strategy and be patient – this is the biggest weapon of a successful trader.
Finally, market cycles keep happening all the time. Never think that you have lost the opportunity. With patience and the right information, you will definitely get the next opportunity every time. Manage your risk, and always keep learning.
Remember, only those who trade wisely are able to survive in the market; the rest become part of the crowd.
How long does each market cycle phase last?
The duration of each market cycle phase is not fixed. Sometimes the accumulation and distribution phases can last for several months or years, while sometimes the markup or markdown is completed very quickly, in a few weeks or months. This depends entirely on market sentiment, economic conditions and global events. For example, the markdown phase during COVID-19 in 2020 was very fast, but the markup phase after that lasted much longer.
What are the best indicators to identify market cycles?
The simplest and most reliable indicators are moving averages, RSI, and volume trends. Apart from these, some people also use advanced indicators like MACD and Bollinger Bands. But for beginners and mid-level traders, it is quite easy to identify the phases with moving averages and RSI.
Can retail investors benefit from market cycles?
Absolutely! Understanding market cycles and using them correctly is also very beneficial for the common investor. You must have patience, stay away from panic or greed and enter and exit by identifying the cycles. This method can give you better returns in the long run.
How do economic events influence market cycles?
Behold the eventful change around the globe or the country; be it interest rates going up or down, a new policy entered by the government, an economic crisis, or any international tension, the markets are highly affected. Sometimes the GDP increases and the market becomes enthusiastic, and sometimes in an atmosphere of recession or war, people start selling out of fear. This is the reason why, along with understanding the market cycle, one should always keep an eye on the latest economic news.
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