Many of us donot know there is a stock market cycle exists for an individual stock or the overall market. If you are able to master the stock market cycle for an individual stock or overall stock market, you will be earning a handsome income from the stock market. In order for you to do that, you must either financially sound or expert in technical analysis. If you are financially sound, you can start to pick up the stock slowly in the phase 1. This is so called accumulation. However if you are not financially sound but have rich knowledge in technical analysis, you can start to pick up the stock on phase 2. So your money will not stuck in the stock market for long time.
The market is composed of 4 phases
1)An accumulation phase
The professional team from the big financial institution or it can be fund managers normally pick up the stock or stocks in this phase. Sometime I refer this as the "Smart Money" accumulation as they are a professional teams and not a normal person. This is the longest phase in the market cycle. The time frame can be ranged from 6 months up to 3 years. It is very difficult for an individual retailers to participate in this phase due to the long time frame and capital limitation. The stock price in this phase normally go side way or within a trading range with low volume.
2)A public and media promotion phase
The media started to focus on the particular stock or sector and the public (retail traders/investors)started to jump in. These are the momentum traders and investors that see a trend forming and wanted to get into the action. That's how a technical analysts jump into the early stage of the phase 2 when they saw the price break out from the resistance or indicators. The price started to rise and volume increase.
3)A distribution phase
The “smart money” started to sells while the non technical retail traders and investors keep buying. The price keep increasing but the volume started to decrease. If you are a technical analyst, normally you are able spot a bearish divergence signal on this phase and say "Bye-Bye" to this stock.
4)A selling phase
More aggressive selling from the professional teams(Smart Money) as well as the retail traders. You can see the price fall very quick as the investors started to panic and wanted to get out as soon as possible. The price will drop very fast if there is a huge selling volume in this phase.
I will quote more examples/chart patterns in future for a better understanding.
