The market cycle is a natural process that financial markets go through, whether it's the stock market, cryptocurrencies, or the real estate market. It represents recurring phases that show how asset prices change over time based on investor sentiment, economic conditions, and supply and demand.
Simply put, it’s like the cycle of the seasons: the change of winter, spring, summer, and autumn. Just as markets have their periods of growth and decline. Understanding market cycles helps investors better navigate the financial world, resist emotions, and make more balanced decisions.
Market cycle phases
The market cycle can be conditionally divided into four main phases:
1. Accumulation phase
2. Rising phase
3. Distribution phase
4. Declining phase
Let's examine each of them in detail.
Accumulation phase
This phase occurs after a deep market decline, when pessimism reigns, and many investors are afraid to invest money. Asset prices are usually low, and the news around the market is negative.
The key point here is that experienced investors begin to "accumulate" assets, seeing potential profit in the future. They understand that the worst is behind, and the market is preparing for gradual recovery.
💡 How to recognize this phase?
- Low asset prices.
- Low volatility (prices do not fluctuate much).
- Trading volumes begin to gradually increase.
Rising phase
This is where "spring" begins in the market. The mood improves, prices start to rise confidently, and investors who previously stayed on the sidelines return to the market.
This phase is often accompanied by positive news, the emergence of new market participants, and growing interest from a wider audience. This is the time when the market becomes "bullish", that is, oriented towards growth.
💡 How to recognize this phase?
- Sustained price growth.
- Increase in trading volume.
- Positive news and optimism in the market.
Distribution phase
This phase occurs after significant growth, when prices have already peaked, and investors begin to "take profits". The mood in the market becomes mixed: some believe in further growth, while others start to doubt.
Large players gradually begin to "distribute" their assets, that is, sell them. As a result, prices start to fluctuate, and the market becomes less predictable.
💡 How to recognize this phase?
- Sharp price fluctuations (volatility).
- Increase in trading volume without noticeable upward or downward movement.
- Contradictory opinions from analysts.
Declining phase
This is "winter" for the market. Prices begin to fall, sentiment turns pessimistic, and many investors sell their assets to avoid losses.
This phase is usually accompanied by panic and negative news. At some point, the decline slows down, and the market returns to the accumulation phase, starting a new cycle.
💡 How to recognize this phase?
- Sharp price decline.
- Decrease in trading volumes as investors avoid activity.
- Pessimism in the news and expert comments.
What conclusions can be drawn?
1. Understanding the phases helps avoid emotional decisions. For example, buying during the accumulation phase is more profitable than at the peak of a rise.
2. The market cycle is inevitable. No matter how markets change, these phases will repeat.
3. Accumulation phase — a time of opportunities. Experienced investors always see potential where most see only a crisis.
4. It is important to study the market and remain rational. It is not only important to know the phases but also to be able to correctly identify them.
By following these simple principles, you can better navigate financial markets and increase your chances of success.