Brendan Sanford 
Understanding stock market cycles is vital for investors looking to weather market downturns and position themselves for long-term gains. Being aware of these cycles gives investors confidence that allows them to remain patient and stick with their strategy.
Markdown occurs after distribution and is marked by a downward-sloping trendline on the chart. Valuations drops as investor sentiment becomes pessimistic and selling activity picks up pace.
Accumulation
The accumulation phase begins when informed investors begin purchasing shares in anticipation of an impending bull market. Prices often move sideways or within a range during this phase; trading volumes remain low to allow large investors to build positions without drawing unnecessary attention to themselves.
As investors approach the accumulation phase’s end, investor sentiment can become buoyant as it appears the worst may be over. Greed and herd mentality often drive investors to purchase shares indiscriminately on an enormous scale.
This phase ends when increased buying volume from informed investors is sufficient to overcome selling pressure and drive prices higher, known as the markup phase (as evidenced by an upward-sloping trendline on the chart). Following that is a markdown phase characterized by declining valuations and an increase in supply – this allows smart money investors to sell shares at reduced prices, shifting the cycle into distribution phase.
Markup
The markup phase is a cyclical market pattern that can be observed across stocks, sectors or the entire stock market. It is marked by sideways price action within an identifiable range and typically lasts for several years before moving further on its cycle.
Institutional investors use this time to accumulate positions without drawing too much notice; traders who recognize this accumulation phase and jump aboard may reap significant returns.
Investors can utilize support and resistance levels to identify suitable entry points during the markup phase, while informed investors may identify undervalued assets at this time. Once in distribution phase, informed investors typically sell off their holdings at a profit; this often triggers more selling which speeds up markdown phase onset and accelerates it further. Hence it’s vitally important for investors to use restraint when buying assets during bear markets; dollar cost averaging can often prove quite effective during this period.
Distribution
The distribution phase is the end of any growth cycle, and a time of unpredictability for investors. Those who accrued stocks during accumulation might sell, triggering market forces that run counter to the shifts anticipated.
At this point, demand is low and declining as sentiment towards investing deteriorates (see the downward trendline on the chart).
Patient investors who are willing to invest for the long term can benefit from the decline in prices and buy stocks at discounted prices or use this financial leverage to spread their asset base. The mark-down phase follows distribution phase and usually last ranging between few months to several years, with a downward trajectory characterised by institutional and individual investors cashing in the profits by selling their shares in the market. It is a good opportunity to buy stocks if you have the patience.
Decline
Smart money and early investors typically take advantage of opportunities presented by lower stock prices by amassing stocks at discounted prices, unaware that other investors might not know about this opportunity. Accumulation may last for an extended period, making the stock market seem stagnant or dormant.
As markets approach their peak, a period of distribution kicks in. This occurs when smart money and early investors take their profits, slowing price growth. Unfortunately, new buyers may be unable to keep pace with selling, which pushes prices lower.
At times of stock market decline, many investors sell out of fear and pessimism, missing the initial rebound and incurring losses that affect long-term returns. By understanding how stock markets work and remaining invested for longer, you can avoid such mistakes while remaining invested longer term and using strategies such as dollar cost averaging to maximize your returns.
