The stock market cycle is based on the cash flows received to and from securities by large financial institutions. Stage 4 is the downhill race. Volume is not the key to this stage because it can be heavy or light as prices fall. The price rises lower from the top of stage 3 and may fall back towards the trading range.
However, after that, the price continues to fall. The moving average usually stays above the stock as the price falls. It's generally convenient to stay in cash when a stock (or the market itself) is circling at an early stage. In the second stage, you'll want to aggressively focus on long positions.
In the third stage you want to earn money. In the fourth stage, you'll want to aggressively focus on short positions. Traders who have a deep understanding of the different stages of market cycles have a great advantage over other traders. During this stage, and really at any point in the cycle, don't stray from your trading plan if things don't move right away.
Finally, after the glorious advance of stage 2, the stock starts trading sideways again and begins to lose customers. In stage 4, a pullback occurs, giving traders and investors another chance to exit before the decline resumes. If you want to learn how to identify these four stages, study the action on the previous chart of several stocks over a weekly period of time. Knowing the current stage of a market cycle can not only provide accurate buying and selling opportunities, but it also provides a tremendous advantage over other market participants.
Once I understood their stages, I observed each purchase and sale of the shares I traded and determined where they occurred in the four stages. In the first part of stage 2, the price may fall back at least once to the top of the trading range marked during stage 1.While prices are starting to form new lows and decreasing highs, some market participants who bought at the peak of the margin or distribution stage are still holding their shares, with the hope that prices will continue to rise. Change to the weekly scale in the stock of your choice and look for these four stages, described in my horrible drawing. While it is exceptionally difficult to identify the end of an accumulation stage or the upper part of a margin stage, traders can benefit from following the general trend and selling their shares once the uptrend shows signs of slowing down, that is, this is the stage where “money “intelligent” in the form of institutional investors begin to accumulate shares.
If you start seeing ever-higher highs and higher lows after the price breaks, it may be a telltale sign that the margin stage has begun. General stock market movements can be described as a repetitive cycle that has four identifiable stages.