- What is the Market Cycle?
Markets do not move straight in one direction, they go up, reaches a peak, comes down and at last hit the bottom. This process repeats again and again which implies the cyclic nature of markets and we can say it as “Market Cycle” for an individual market. When one market cycle ends the other begins and it continues like this.
It is considered being directly related to the ongoing business environment. Each Market Cycle has different phases which complete it and each phase represents the prevailing trend in the market due to different economic and business conditions.
- Phases of Market Cycle
- Accumulation Phase
It is that phase of Market Cycle where the market reaches the bottom after a decline. This is where the buying starts which is mostly initiated by value investors, large investors, insiders or money managers. They buy by going against the general market opinion as they believe they know the true value of an industry or company and expect the worst is over in the market. This generally starts due to certain positive business and economic conditions. The price of an asset remains neutral and moves in a trading range in this phase.
- Public Participation Phase in an upward direction or Mark-Up Phase
This phase of Market Cycle starts when price breaks out from the accumulation phase in an upward direction starting a new trend. Many technical oriented investors and traders buy in this phase. Price rises with an increase in volume due to the positive environment in the market.
This phase has one another part which is known as Euphoria Phase where many uninformed, risk-takers, novices starts buying in a hope of more rise in the price but they are actually buying at the top which will ultimately be going to fall off. During this time price usually rises with a decrease in volume indicating the end of the trend.
- Distribution Phase
This phase of the market cycle occurs when bullish sentiments of the previous phase turn into mixed sentiments. This is where selling starts which are mostly initiated by value investors, large investors, insiders or money managers. This generally starts due to certain negative business and economic conditions. This is where demand starts converting into supply. The price of an asset remains neutral and moves in a trading range in this phase.
- Public Participation Phase in a downward direction or MarkDown Phase
This is the last phase of Market Cycle where price breaks out from distribution phase in the downward direction starting a new trend. Many technical oriented investors and traders sell-off in this phase. Price declines with an increase in volume due to the negative environment in the market.
This phase has one another part which is known as Panic Phase where many uninformed, risk-takers, novices starts selling. During this time price usually declines with a decrease in volume indicating the end of a trend.
The price decline is so sharp that it is sharper than advancement in Euphoria phase. This sharp price decline leads to the end of Public Participation Phase and this is also the end of Market Cycle after which market again starts with the accumulation phase and the cycle goes on.