Why investors should know about stock market cycle phases?

There are four different phases of stock market cycle which traders and investors must know about to minimize their risk.Stock market cycle and economic cycle are two different things. By having a good understanding of these phases a trader can wisely decide which stock should be selected for trading purpose and which strategy should be used. However mostly traders do not understand the importance of market cycle and do not perform well by investing and selling at wrong times. Financial advisory services providers can be consulted for getting useful recommendations on mcx trading tips and more as such experts advise helps to sustain in market by earning good returns.

Four major components of market cycles and how to recognize them :

1. The accumulation phase

Every market cycle begins with accumulation period.In this phase valuation of stocks is very attractive as value investors, experienced traders, corporate investors began to buy believing that worst is over. However market sentiments remains bearish here. When prices of stocks have declined to their lows traders believes market is bearish and they are not willing to buy. Also many traders sell their holding to stop further losses. Such market condition gives opportunity to others to buy at discounted price.With this number of buyers increases and market begins to take a positive turn.

2. Mark-up phase

As market begins to see some growth in prices and gains stability the cycle enters in the second phase which is known as mark-up phase. Because of actions of traders and investors in accumulation stage market starts experiencing higher highs and lows. In this stage other investors and traders gain confidence which were earlier hesitant in first stage.Seeing this rise in price further increase its demands which results in more market recovery.

3. Distribution phase

When prices of stocks begins to loose momentum the distribution phase begins. Traders thinks that market is no longer experiencing any growth and in order to maximize their profit they began to sell their holdings. And some still believes market is bullish and keeps on buying because of which there is more volatility in market and prices fluctuates in either direction.

4.Mark down phase

This phase is most painful for those who are still holding their position in market.The remaining traders who are holding their losses realize stock values are following downward trend. They start selling their holdings which further declines the stock prices.

These are different phases of stock market cycle and what traders do in each phase. With no or improper understanding of these phases traders may buy or sell at wrong time which may bring them negative returns. To be on the safer side experts recommendations on mcx tips, trading tips can be referred. Market offers ample opportunities, with good understanding of its different terminologies and wisely planning trading strategy optimum returns can be earned.

I am a financial analyst. I always like to read and explore more about market.