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Stock market cycles you should know about
Publish Date: June 10, 2019
By: Sandhya Kannan, Head – Content
The Indian stock market is constantly on the move. Is there a pattern to its movements?
Understanding the different share market cycles is important for traders and investors. It will help you to identify the most suitable trading strategy.
Related: How to identify stock market trends
Four stock market cycles
1. Accumulation
The accumulation phase typically begins after a decline in the markets. Institutional investors like banks and mutual funds now start buying up large volumes of stocks. Stock prices tend to move within a closed range.
Retail traders may not profit much from short-term trades during this period. But they should watch for signs of the accumulation phase. It suggests that the season for profitable trades is near.
2. Run-up
The stock prices finally break out and hit new highs. As the run-up phase progresses, price movements slow down. So, volatility decreases as well.
Retail traders should try to buy stock in the early run-up phase to make big gains. This is also a good time for short-term trading.
Related:3 stock-picking strategies that you should avoid
3. Distribution
By now, the market’s buying power has petered out. The traders who bought stock during the run-up begin to sell these off. The volume of shares traded increases. But stock prices remain stable and move back into a closed range.
Trading opportunities are limited now. Once it becomes clear that the run-up phase is ending, traders show less interest in the stocks.
4. Run-down
This is a time of decline in the share market. Traders who bought stocks during the distribution phase may realise that these were bad buys. They might be desperate to sell these shares now.
Even if stock prices show a downtrend now, try not to panic. Instead, use this opportunity to buy low-priced stocks that seem promising in the long run.
Related:Is negative price to earnings a bad sign for investors?
Conclusion
Watch for signs of the different stock market cycles before making a trade. You can then make the most of market movements when buying and selling stocks.
If you’re keen to ease your trading experience, try a 3-in-1 account. Get the details here.
Also read:
- Why stock prices move up and down
- What can you learn by analysing a company’s debt profile?
- Make the right trade with Nifty Call of the Day
- Speed up your trading with Fastlane
- Investment tips from the famous Monopoly
