Market Cycles

Market cycles are an integral to understand for any financial market!

Learn about the 4 main phases that make up every cycle and how you can use it to your advantage to make more confident and profitable decisions.

Try having a go at identifying where you are currently in the market!

Hi it’s Zac here, this video will be all about Market cycles. This is for you if you have been curious on how the pros know when to buy the bottom and sell the tops.

What are market cycles? 

Markets typically have anticipated economic cycles, which can cause the market to ebb and flow. They are a natural event of any financial market, and they play out time and time again. However, compared to the stock market, cycles in crypto can be significantly shorter due to the rapid price movements.

There are four main stages of any market cycle. 

  • Mark-up phase – uptrend where the market has reached a stable position and it begins to drive higher. Early movers detect a reversal through technical analysis and join the ride here. You’ll notice at this stage, media attention begins to pick up as greed starts to kick in. Prices towards the top of this phase start to slow down, and the undecided investors pile in as they see this as a great opportunity to get involved. The market is in a euphoric state. Smart money begins to exit.
  • Distribution phase – local peak reached, and sellers are starting to dominate as a mixed sentiment sets in. At the end of this phase, the downward trend will commence. Typically the more aggressive the rise in price equates to how sharply the fall from grace will be.
  • Mark-down phase – the downtrend that is usually the most painful for investors still holding positions. Many who got in during the distribution phase give up and decide to cut their losses after a 50% drop.
  • Accumulation phase – local bottom reached – this is where the smart money and experienced investors enter the market. Phase typically starts with a negative sentiment, including a loss of interest, disappointment, boredom, a lack of belief in any positive growth and increasing risk aversion.

A really simple way to break this down is Prices rise, peak, fall and then bottom out — and another cycle begins right away. The lengths of each phase may differ each time, depending on the environment.

  • What causes this natural wave-like pattern is people speculating and reacting to the associated fundamentals, emotional states, and chart patterns that result on a mass scale.
  • Put simply, its the constant flow of optimists entering the market and pessimists leaving it. 

How to use them to your advantage? 

  • Identifying where you are currently in the market trend will allow you to understand if the market is ready for buying, selling, or holding like the pros.
  • Now they aren’t always as clear as day, but as you gain experience in the market you will be able to identify them with a high degree of confidence.
  • You can use these on both higher and lower timeframes depending on if you are more of a trader or a long term investor.
  • So understanding these market cycles is half the battle. The next half is making wise investment decisions based on this information.
  • This can be a huge advantage to allow you to swoop in for the best prices and get out of the market as profitable as possible. 

Recap (3 main takeaways)

  • Market cycles are a natural part of every market.
  • Four distinct zones within a market cycle play out time and time again in every market. Some are quicker than others, especially in crypto.
  • Understanding where you are at in a cycle can help determine the most optimal investing strategy to squeeze the most juice out of the market.

I hope you got something out of this today. Until next time!

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