What is a Stock Cycle?

When you start learning about stock or cryptocurrency trading, various terms and analyses make their presence known from the get go. It is important that you learn these key details in order to make the most out of your trading activities.

Stock cycles fall under this category of crucial information for every new cryptocurrency trader. But if you have never heard the term before, it might seem a bit daunting to learn what is a stock cycle and how does it work for crypto trading.

To help you get a firm grasp on the subject, here is a lowdown on stock cycles and what they stand for in the first place.

What is a Stock Cycle?

A stock cycle or market cycle refers to an asset’s upwards and downwards trends in pricing that are analyzed through technical analysis. The term follows the notion that whenever a stock faces an increase in its price, it would eventually face a decrease in its value to complete a price cycle. Once complete, the cycle may start all over again.

A stock cycle stems from market movements of people buying and selling the asset in question. But it has the most influence from financial institutions or institutional investors that affect market sentiment through their large-scale transactions.

A stock cycle has distinct phases that outline how an asset’s value may be affected overtime. While there is no set timeline to these phases, they are almost always seen in an asset’s lifetime. Once you identify what phase of the market cycle your asset is currently going through, you can increase your chances of earning higher profits or steering clear of losses.

Due to this reason, it is extremely important for all types of traders to not only learn about stock or market cycles, but also know how to identify them within a certain asset. This also holds true for cryptocurrency traders, who are operating in a highly volatile market to begin with.

What Phases Are There in a Stock Cycle?

A stock cycle or market cycle has four phases that include:

  1. Accumulation
  2. Markup
  3. Distribution
  4. Markdown

As suggested by the labels of these phases, their progression starts with the asset price driving upwards, and ends with it dropping downwards. To understand what is a stock cycle and how its phases work in a detailed manner, you can take a look at how they are supposed to affect an asset or cryptocurrency.

This process doesn’t take long. But it helps you learn exactly how it might work for the asset that you are planning to buy or already holding in your account.

Accumulation

This is basically a phase of consolidation, where the asset price keeps moving between a range of closely-knitted values. This refers to the market’s initial response at the start of the stock cycle where the price is neither moving up or trailing down in a significant manner.

For many traders, this is an opportunity to make quick profits through day trades or invest and hold the asset in question in hopes to see positive market movements. When the asset starts garnering attention from institutional investors and drives upwards, it enters the markup phase.

Markup

The markup phase is all about an asset’s value driving upwards from its phase of accumulation. During the markup phase, you can see the asset generating profits for traders who invested in it beforehand as well as those investors who purchased it during this current phase itself.

As a result, when you learn what is a stock cycle, the markup phase stands out to be one of the best stages to invest in an asset or cryptocurrency. For some, it remains the ideal time to liquidate the investment before the next phase of the market cycle. By identifying this phase in an asset, you can pave the way for possible profits for your trading activities.

Distribution

The distribution phase is where market sentiment outlines price movements that are either stagnant or oscillate at insignificant levels. When this continues to take place for a noticeable period of time, it indicates a somewhat bearish market that is winding itself down.

When institutional investors and regular traders identify distribution in a market cycle, it leads them to liquidate their positions in a more noticeable way than in the markup phase. If you happen to notice this phase, you should also steer clear of holding such assets for too long.

Markdown

The markdown phase outlines investors’ actions to let go of the asset in question. At this point in time, if institutional investors and a majority of general traders start to get out of the market, it leads towards a drop in asset price.

These movements are an indication for many to liquidate their positions before the asset hits a value that leads to financial losses for its supporters. In the markdown phase, the best thing to do for many investors and traders is observe the phase as it completes the stock cycle and comes full circle.

How Can You Identify Stock Cycle Phases?

Once you learn what is a stock cycle, you can identify stock cycle phases through technical analysis and indicators. By using these tools to study market movements and associated cash flows, you can start practicing your own analysis. After some trial and error, you can make informed decisions that help lead you towards profitable trades.

Apart from using technical tools, you can also harness the power of community and keep an eye out for market sentiment by following professional traders on different platforms. By comparing different opinions from reliable analysts, you can determine which assets or their market cycles seem to offer lucrative investment opportunities.

This helps you make the most out of your short-term trades as well as your long-term investment plans, while also allowing you to grow your profits and enhance your experience as a seasoned trader.