Understanding the Stock Cycle

Understanding the stock cycle is extremely important for you as an investor. Here are the basics of the stock cycle and how it can affect investing decisions.

The Stock Cycle

In the stock market, a typical stock will go through a standard cycle. If you are an investor, understanding the different stages within this cycle can help you avoid getting a stock at the wrong time. The four main phases of the stock cycle are accumulation, markup, distribution, and markdown.

The Four Phases

The accumulation phase involves institutional investors such as mutual funds, buying up a large amount of a particular stock. During this period, not much growth takes place. After the accumulation phase, the markup phase takes place. This is when institutional investors help to decide a general direction in the trend. This is typically the best time to own a stock as you will see a long-term period of sustained growth. After the markup phase, the institutional investors attempt to sell off their shares of the stock. However, they want to do this slowly in order to not cause a large downturn in the price of the stock. This is called the distribution phase. Then, once the institutional investors are out, the stock price goes through a markdown period. This will involve the price of the stock moving downward again.

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