Did you know that there are 4 stock market cycles and stages?
If you do the wrong things in each stage, you are going to lose a lot of money.
By the end of this guide you will be able to:
Know why most investors and traders lose money unnecessarily
Know when to buy stocks
Know when to sell stocks
Know when not to buy stocks
Improve your trading accuracy
Okay, if you are a total beginner then you would never have heard about the 4 stock market cycles or stages.
In this article I will expose the reasons why some make money in the stock market but many do not.
Cycles Appear In All Areas Of Life
This world is full of cycles. Think about nature and you will be surprised how organized things are in this world.
Some cycles that we can observe in life are:
Human life cycle
Carbon cycle
Full moon cycle
4 seasons cycle (autumn, winter, spring and summer)
I think the perfect way for you to understand the stock market cycles is to take a look at the 4 seasons cycle.
What do humans and animal do in each season cycle?
During summer, you go to the beach and sunbath. You wear less clothes because it is hotter than usual. Sometimes you jump into the river for fun.
In the winter you wear more clothing such as winter jacket and winter coat to keep yourself warm
Some animals hibernate in the winter.
In every season you and the animals survive by doing what is appropriate in the season.
The stock market also has seasons like summer, autumn, winter and spring.
In a stock market winter, you will get wiped out
In a stock market summer, everything is hot and you can buy buy buy and still make a nice profit
The problem is not many people know when the seasons in the stock market are. Which is why it is important that you go through this article thoroughly.
If you know what to do in each season in real life....
Then you should also know what to do in each stock market cycle.
The 4 Stock Market Cycles - That Repeat Again And Again
Just like in real life there are 4 seasons, the stock market has 4 cycles.
Briefly they are:
Accumulation
Mark Up
Distribution
Mark Down
Each cycle has its own personal characteristics and temperament. It is like looking at the behavior of each individual.
Some people are hot tempered while some people are more calm. Some people are reactive and some people are proactive.
If you want to know how to deal with people you must first understand their behavior.
If you want to know how to deal with the stock market you must also understand what happens in each cycle and stage of the market.
If we were to illustrate how the stock market cycle looks like it would be something like the above.
Of course it would not be as smooth or perfect like it but this is just to give you an idea of what the stock market cycles generally looks like.
I think by now you would already have an inkling of what you should do. The question remains is how do you know which stage the stock or market is in.
Accumulation
At this stage the stock is not moving that much. The price of the stock can be stuck in a range bound area. There will be resistance areas that the stock is not able to overcome.
The stock typically trades within a support and resistance area. There is not much action.
The retail investors will not be interested in the stock at this moment because there is not much price movement that creates excitement.
The stock will also not be in the news. Maybe there will be some people who discuss it in private groups but the stock does not attract the attention of journalists or financial news.
What is interesting is this...
There will be some wealthy investors and large institutions that will do their homework. Once they are satisfied that the stock has hidden value and future potential they start buying the stock.
Because of their large purchasing power, these investors and institutions will be slowly accumulating the shares of the company.
Which is why we call this cycle the "Accumulation" stage.
They will buy up 50,000 shares today and the next day another 30,000 shares.
The reason they do so is so that they can keep the average cost of purchase low.
If they start purchasing 500,000 shares every hour then it may cause a price spike. It will also create unnecessary attention. Which is something they do not want.
Occasionally you will observe the stock's price go up by quite a bit. Then the stock goes back down again but it always has a floor.
This is where the large investors and institutions keep on buying and accumulating shares of the company. Their actions support the stock and keep it from dropping.
Should you buy the stock at this cycle?
Well, there are some pros and cons to buying at this stage.
The pros:
Stock price is very cheap
You will get in very early before the public
Your return on investment will be very high if the stock eventually moves up
The cons:
The accumulation stage can take months to years
Your money is tied up
There is an opportunity cost where you could have invested in other fast moving stocks
Yes there are pros and cons investing in the Accumulation stage. If you are a small investor you should perhaps not invest in this stage.
This is the domain of large investors and large institutions as they need to go in before the public due to their large positions.
If you are small, then there are other areas where you can put your money to good use.
Mark Up
Now we come to the most exciting stage of the cycle.
The mark up stage is characterize by a rising stock market. The stock will also be rising.
During the accumulation stage, the stock price would have been trading sideways. All of a sudden you begin to see the stock breaks above resistance and trading zones.
The stock is no longer rangebound.
It is moving up gradually. At times the stock can rise rapidly. Then it stops rising and trades sideways and resumes it upwards move.
There is strength in the stock. There is excitement. There is bullishness.
At the early stages of this mark up cycle, large institutions and large investors who have not come in during the accumulation stage will start to pour money into the stock.
Which is why during the early stages before the stock explode higher you can often see volume spike in the stock's trading activity.
Some very sharp investors or money managers have spotted the beginnings of the mark up and plowed tons of resources into the stock.
Other characteristics of the mark up cycle are:
Trend followers will start to jump into the stock
The stock is trending up
The stock is making higher highs and higher lows
The public will start to get in right at the middle
Most people will make money in the stock as it moves higher
The mark up cycle is where the stock starts to trend up. In other words the stock chart will be making higher highs and higher lows.
If you do not understand what higher highs and higher lows mean don't worry. What it means is if you look at the stock chart you will see the stock moving from lower left to upper right.
This is what a stock that is in a mark up cycle looks like.
You can go and try looking at it yourself. Go to Google and then enter Apple stock into the search bar.
It will come up something like the above.
Notice how the graph of Apple's stock moves from lower left to the upper right.
Sure there are ups and down. Nothing is smooth sailing in the investing world. But a stock that is in the mark up cycle will generally grind higher.
This is the kind of stock that you want to invest and trade in.
Before you jump into any stock that looks like it is in a mark up cycle you need to know the pros and cons.
The pros:
Most people will make money in stocks that are in a mark up cycle if they hold it long enough
Stocks that sell off in the mark up cycle tend to recover their losses and move higher to make new highs
When you buy a stock that is in a mark up cycle you are going with the trend not fighting it. So its easier to make money.
The cons:
Most people do not know how to catch the stock at the beginning of the mark up cycle
Most investors still lose money because their entry timing is wrong
Most people will buy the stock at swing highs right before a correction and this causes panic when the stock has a correction
It is very difficult to time when to buy or sell stocks even when it is in a mark up cycle
Many people tend to buy stocks at the end of the mark up cycle
To be consistently profitable in the mark up cycle, you need to learn technical analysis and trend following
After reading the above you might think....
How on earth am I going to be able to make money when it is so difficult even in the mark up cycle?
That is where you need to immerse yourself in the world of technical analysis and trend trading or trend following.
Learn as much as you can about technical analysis either from books, Youtube (which is a good place and free as well) and from paid courses. You should also learn about fundamental analysis so you can combine it with technical analysis to have an all round approach.
Do remember that at this cycle the stock of the company starts to get well known to the entire universe.
You will often hear about the name of the company in financial news and publications and even magazine and websites.
This is also where 90% of people start to hear about the company and they will want to buy the stocks.
The trouble is, if you are one of the 90% odds are you will be buying near the top.
Which now brings us to the next cycle...
Distribution
The distribution cycle is where a stock tops out. Simple as that.
As the stock matures, the price action will be more erratic. Price action is wide and whippy.
This happens because smart investors and large institution start to dispose off the stock. Their selling cause price to fluctuate up and down erratically.
At the same time the ignorant public will load up on the shares.
The public will listen to rumours, get rich quick groups and their neighbors. The fear of missing out causes them to scoop up shares that the large institutions are selling.
The selling by the institutions and buying by the public causes wide and whippy movements in the stock's price.
When you really look at the stock price, you will notice that the selling is greater than the buying. When large institution sell, their volume is bigger. Although the public buys their buying pressure is not enough to make the stock move higher.
This is when you start to see the stock unable to move higher and it starts to make lower highs.
Sometimes the stock can have a parabolic move up and suddenly collapse.
This almost always happen when the stock is "hot".
Everybody will be talking about the stock and the stock can jump $20-$30 and even $100 in a single day.
The public gets excited and tries to participate in the stock.
In a single week the stock can move up 100%.
As the retail investors and public chase the stock, the smart investors and institutions think that the stock is extremely overvalued and risky.
They start to unload the shares.
When there is no more large buyers available to support the stock, the stock suddenly collapses.
Collectively the public's buying power cannot equal the large institutions. Which is why when the big fishes leave the pond, the whole thing collapses like a house of cards.
Selling begets more selling.
The retails investors panics and this creates a downward spiral where everybody starts to sell.
A stock can drop from $200 to $150 in a single trading day.
Which is where the next step in the cycle comes in.
Mark Down
The mark down cycle is where all the pain and selling comes in.
This cycle comes after the distribution cycle where large institutions and large investors have sold their shares.
Since the big guys no longer support the stock naturally it goes lower and lower over time.
If you take a look at the stock chart of the company you will see it moving from upper left to lower right.
This is also the place where a lot of inexperienced investors try to bottom fish. They think they are Warren Buffett and act smart to purchase the shares of the company only to see it continue to sink.
The characteristics of a mark down cycle are:
The stock price is no longer able to move higher to make new highs
The stock price makes lower highs and lower lows and generally trends lower
This is the place where lots of inexperienced investors lose money by trying to become a Warren Buffett
Most people who buy stocks that are in a mark down cycle will lose money rapidly
Of all the cycles in the stock market this is most dangerous cycle for an investor to participate in. It makes no sense to try and bottom fish like Warren Buffett.
Once a stock is in a mark down cycle it just keeps going lower until a real bottom forms. Most of the time the real bottom forms only when smart investors and institutions start to buy the stock again.
Here are the pros and cons of participating in the mark down cycle.
The pros:
If you learn how to short stocks you can profit from a falling stock
Stocks fall 3 times faster than it rises therefore you can reap the profits faster
The cons:
It takes a lot of knowledge and sophistication to learn how to short stocks
Shorting stocks can be quite risky as the stock can gap up way above your stop loss
Combining Stock Market Cycles With Stock Market Stages And Trend Analysis
You have just studied the stock market cycles which every stock will go through. You now understand the psychology and what happens in each cycle.
In order to transition from theory to practical you need to know the stock market stages as well.
It is easier to study stock market stages when you use stock charts. Which is why I advise you to take some time to learn about stock charts if you have the time.
Thankfully it is not too difficult.
Just like the stock market cycle there are 4 stages of the stock market
The 4 stages are:
Stage 1 - Sideways market
Stage 2 - Uptrend / Bull market
Stage 3 - Market Top
Stage 4 - Downtrend / Bear market
Before we continue, I would like you to take a look at the chart below. It is the monthly chart of the Standard & Poor's 500 index from 1998 - 2013. Click on it for a larger view.
Don't worry if you do not understand. Just go through it and try to grasp as much as you can.
Stage 1 - Sideways Market / Basing / Accumulation
Stage 1 of the stock market is where the market trades sideways without moving up or down. The price of the stock trades in a tight range.
For example, the stock may trade from $20 - $25 for many months.
If you go back and read the "Accumulation" part the description matches what is happening in stage 1 of the stock market.
Stage 1 often happens after a bear market. For stocks it can happen after a prolonged downtrend.
This is where most investors have already given up on the stock.
They no longer check the ticker symbol of the stock. They no longer read the financial column of the newspaper.
They have probably lost so much money that they don't want to even mention the name of the stock or anything related to the stock market.
Without them knowing the stock stops dropping. The downtrend ends.
The stock starts to trade sideways in a range.
In the chart of the S&P 500 above you can see how the stock market traded sideways in 2003 and 2009 after a massive sell off.
This is the stage 1 of the stock market. It is basing and trading sideways.
Unknown to many people...
The smart and wealthy investors start to ACCUMULATE shares of many companies.
Tip: After a big market sell off smart investors will study and see if the market has bottomed or not. If they think the downtrend or bear market is over, they will start to accumulate shares of companies.
If you want to become one of the smart investors and learn how to spot a bottom in stocks, do read my guide The Beginner's Guide To Bullish Reversal Chart Patterns - Unveiling The Secrets To Buy Low & Sell High
Stage 2 - Uptrend / Bull Market / Mark Up
This is where it starts to get interesting...
After a period of basing the stock or the stock market starts to break above the trading range.
The stock also breaks above a resistance area.
You can often see increase in trading volume as the stock breaks out higher and starts a new uptrend.
Take a look at the monthly chart of the S&P 500 again.
From mid 2003 to 2007 the S&P 500 was in a stage 2 uptrend or Mark Up.
This is also where most people call it a bull market.
This is also where the public will make money because "a rising tide lift all boats".
Tip : When the stock market is in a stage 2 uptrend / bull market / mark up every dip is a buyable dip
Trend following also works very well when we are in a bull market. In fact some traders have been able to amass a big net worth just by using trend following.
GEM : If you want to increase your odds of success in the stock market, only buy stocks when they are in a stage 2 uptrend.
If there is only one thing that you learn from this guide it is to buy stocks that are in their own stage 2 uptrend or bull market. Never ever touch the stock if it is in the other stages.
By the way, why do we call a market that is trending higher a "bull" market?
Have you ever seen a bull charge? Have you ever seen a bull gore?
When it charges and gores it moves with strength and its horns moves higher. Similarly, stocks in a bull market tend to have strength and charges higher.
Stage 3 - Market Top / Distribution
The market does not go up forever.
With every bull market there will be a market top. This is where the stock market starts to experience distribution.
The stock market may run up too much too soon and things get overheated.
There is irrational exuberance.
Too much greed makes people not think clearly. A rising stock market is like alcohol. Consume a bit and it gives you a high.
When you overdrink the alcohol goes to your head and you get drunk. The next day you get a hangover.
Sooner or later your stock is going to top out.
Back in 2000 we had a tech crash or what is popularly known as the Dot Com bubble. Valuations of tech companies were way too high.
The Nasdaq Composite rose 800% from 1995 to 2000.
It fell 78% from its peak.
Stage 3 of the stock market is what we learned earlier as the distribution phase.
Believe it or not there are people who are able to see it coming. They are the smart money and they will be selling stocks ahead of the public.
How do you know that the stock market is topping?
A good way is to look at the characteristics of a market top.
First of all stock prices will be wide and whippy. As the smart money sells, the public tries to buy.
The heavy selling causes the price to fluctuate a lot. At the same time the public still wants a piece of the stock. However, their buying power cannot match that of the institutions.
A stock can have a parabolic move towards the end of its rise. This is caused by irrational exuberance. Its like the last great move before the collapse.
If you see a stock move up too fast too soon....
BEWARE!
It may be the last move up before it collapses.
The public gets excite when a stock doubles in a week. Therefore everyone keeps buying and buying.
The smart money on the other hand sell into strength. So when that happens nobody is there to support the stock anymore.
Tip : When you see these characteristics happen in a stock stay away from the stock. Don't chase it. Better to sit on your hands and wait for the next opportunity.
Stage 4 - Downtrend / Bear Market / Mark Down
Stage 4 of the stock market stages is also known as the downtrend. You will also hear financial journalist mention it as the bear market.
It has all the similarities with the mark down cycle.
If you take a look at the monthly chart of the S&P 500 above again you will see that this is a very nasty stage.
The downtrend or bear market lasted from 2000 - 2002. Another bear market also appeared in 2008-2009.
If you have invested in any stock in these bear markets odds are you will have lost a lot and a lot of money.
Smart investors and traders would have avoided this market. Sophisticated investors and traders would have you a process called "Short Selling" to profit from the fall in stock prices.
Basically short sellers make money when the stock market falls.
For most people it is best to keep your hard earned cash in a Certificate of Deposit or bonds.
Remember when it is winter you stay at home or wear thick clothing.
You protect yourself.
GEM: Never buy stocks when it is in a Stage 4 Downtrend / Bear Market / Mark Down. Protect yourself from this environment by doing nothing.
Some Real Life Examples Of Stocks Moving From Stage 1 To Stage 4 of the Stock Market Stages
I think the best way for you to learn about the 4 stock market stages is to give you lots of example of how stocks move from stage 1 to stage 4.
I have already shown you a chart of the general market which is the S&P 500 where it moved from Stage 1 to Stage 4 of the stock market stage/cycle.
The stock market stages / cycle does not only apply to the general indices.
They also apply to:
Individual stocks
Overseas or foreign stocks
Commodities like oil, copper, silver and gold
Cryptocurrencies like Bitcoin, Ethereum, Doge etc
Ford Goes Through A Stock Market Cycle In The Weekly Charts
Let's start by taking a look at the weekly chart of Ford.
Remember Stage 1 is where the stock usually trades sideways. During this stage, the stock does not move much but stays within a trading range.
Ford traded sideways for the most part of 2020.
Stage 2 is where the action happens.
This is where Ford started to move higher. The stock makes a higher high and higher low. We call this an uptrend or a bull market in the stock.
When you look at the price action of Ford, it keeps chugging higher. Each high is higher than the previous high. Each low in Stage 2 is higher than the previous low.
As the stock moves higher, notice how thisFord suddenly tops out and this is where stage 3 happens. Market tops can happen very slow over a period of time but sometimes they can happen very fast just like Ford.
When the stock tops out a downtrend begins and this downtrend is called a Stage 4 in the stock.
The stock can end stage 4 and start a new stage 1. This is what happen to Ford. Notice how it traded sideways after the downtrend.
It may or may not be starting a new uptrend but at least the selling has stopped.
This is where a bit of support and resistance knowledge can help you. If a stock has dropped to a weekly support area, then it is very likely that a new stage 2 uptrend can begin.
The S&P 500 Makes A Daily Stage 1 To Stage 4
Stage 1 to Stage 4 also happens in the daily time frame.
While the previous chart of Ford shows a weekly Stage 1 to Stage 4, the chart above is an example of a daily stage 1 to stage 4.
The chart above shows the daily chart of the S&P 500. Notice how the S&P 500 went from Stage 1 to Stage 4 in from April to November.
The S&P 500 went from a Stage 1 to Stage 4 in a period of about 8 months.
During this stock market cycle you could have only buy stocks for 2 months and still make a lot of money.
The stock market is not fair.
Sometimes working only 2 months is enough to make enough money for the rest of the year.
Even if you work harder and invest or trade for the entire 8 months you would probably have lost all your profits.
In the stock market, timing and selective participation is more important than lots of activity.
Do you still remember what stage 1 to stage 4 resembles in the stock market cycle?
If you can't then let's do a bit of a recap.
The 4 stages are:
Stage 1 - Sideways market / Basing = Accumulation
Stage 2 - Uptrend / Bull market = Mark Up
Stage 3 - Market Top = Distribution
Stage 4 - Downtrend / Bear market = Mark Down
I think by now you would have a grasp of what the psychology of investors are during each cycle.
If you don't let me introduce you now to the concept of Fear and Greed.
Fear and Greed In The Stock Market
If you have been seeking knowledge about the stock market, you will eventually come across a quote by Warren Buffett.
Warren Buffett who is one of the greatest stock market investors in history once said something like this...
Be fearful when others are greedy and greedy when others are fearful.
In this short sentence alone there is so much to be learned about the stock market and the psychology of its participant.
Here are some gems we can deduce from this wise saying:
The general public is always wrong. Don't follow them. Instead forge your own path
It is very difficult to do what is right in the stock market. But to do what is right you often have to go against the public
Never fear the feeling of "fear" and "greed". Never let it control you instead use it as a tool to gauge public opinion which is usually wrong
There is always a right time to buy and buy more of stocks. (Stage 2 Uptrend)
There is also a right time to stay away from stocks and don't be greedy. Instead be fearful of a loss and sit on your hands and do nothing (Stage 3 Market Top and Stage 4 Bear Market)
This wise saying by Warren Buffett is not meant to be read.
It is meant to be digested.
As you think about it you may begin to write down some of your own observations.
What You Should Do In Each Cycle / Stage Of The Stock Market
Arm with the knowledge that I have given you and armed with the wise saying of Warren Buffett you are now ready to do what is right in the stock market.
The bible in Ecclesiastes 3:1 says
"There is a time for everything, and a season for every activity under the heavens" NIV
Yes the wisdom in the bible is timeless.
Even in the stock market, there is a time for every activity.
There is a time to buy
There is a time to sell
There is a time to do nothing
There is a time to short
There is a time to learn
There is a time to observe
There is a time to read
There is a time to seek advice
If you are just starting out in the stock market you are doing the right thing by reading this guide. You are doing the right thing by observing the stock market first.
You are also doing the right thing paper trading and reading as much as you can.
There is a time for everything.
When it comes to buying and selling in the stock market this is what you should do:
Stage 1 - Accumulation / Basing = Do nothing
Stage 2 - Mark Up / Uptrend / Bull Market = Buy and be greedy
Stage 3 - Distribution / Market Top = Sell your stocks / Stop buying stocks
Stage 4 - Mark Down / Downtrend / Bear Market = Short stocks / Stop buying stocks
The right thing at the wrong time is still wrong
The wrong thing at the wrong time is still wrong
The right thing at the right time is the key to stock market success
A Simple Trend Following Tool To Help You Enter And Exit Each Stage
It will be too long to put in a lesson on trend trading and trend following in this guide. For that we need another guide on trend following for me to fully equip you with all the knowledge you need for trend following.
However, I would like to teach you a simple trend following tool that will enable you to easily identify which stage cycle or stage your stock is in.
The tool that I will teach you is the moving averages.
The moving averages is a lagging indicator but when you use it correctly it can be a great trend following tool that captures the meat of the trend.
What is the moving average?
A moving average is simply the average price of the stock for a period of time.
Let's say the closing price of the stock for 5 days is 10,12,14,16 and 18. The average price for that 5 days are (10+12+14+16+18+) / 5 = 14
That will the 5 period moving average.
Each day after the close, the computer will automatically calculate the average closing price for the past 5 days and put it on the chart to form a smooth line.
If it is a 20 period moving average, we will take the closing price of the last 20 days and divide by 20 to get the 20 MA.
MA stands for moving averages
For our trend following tool, we will be using the 20 MA and the 50 MA.
The 20 MA is the red line in the chart above. The 50 MA is the blue line.
The 20 MA is considered the faster moving average because of its shorter duration and sensitivity
The 50 MA is considered the slower moving average because of its longer duration and slower signal
There are a few rules to follow when you want to use the moving averages as a trend following tool.
When the stock is trading above the 20 MA, then it is short term bullish
When the stock is trading above the 50 MA, then it is mid term bullish
For a stock to be in a stage 2 uptrend we need the 20 MA cross above the 50 MA (we call this a bullish cross)
The best stage 2 uptrend / mark up is where the 20 MA is above the 50 MA and they form a railroad track.
Let's walk through the daily chart of AAPL above.
Back around October to early 2023, AAPL was trading below its 20 MA and 50 MA most of the time.
What did this tell us?
It tells us that the stock is not bullish. Things are still bearish and the trader should be careful.
At times the 50 MA is above the 20 MA.
This tells us that the slower MA is stronger than the faster MA and this is not a bullish situation.
You should avoid this stock at the moment.
In January 2023, the stock went back above its 20 MA. Then it went back above its 50 MA. Things are slowly turning bullish.
The faster MA (20 MA) also cross back above the slower MA (50 MA).
This is a bullish cross and hinted to us that a nice uptrend is about to begin.
From March to the end of July the stock's 20 MA and 50 MA formed a rail road track. This is the best environment to buy stocks from a trend following perspective.
This is a strong stage 2 uptrend bull market in the stock.
You want to find stocks that are in this situation.
In August the stock dropped below its 20 MA and 50 MA. The 50 MA soon went back above the 20 MA.
This told us that the trend of the stock is not good for bulls.
You should avoid this stock now.
Trend Following And Stage Analysis In The 60 Min Chart Of AAPL
So far I think we have only been dealing with the daily chart and longer time frames.
Did you know that cycle and stage analysis applies to all time frames as well.
When you incorporate the moving averages into stage analysis it makes it much more easier to spot a stock in a short term uptrend.
The chart above is the 60 min chart of AAPL.
See how AAPL went from stage 1 to stage 4 and then start a new stage 2 uptrend again.
Do you remember what you should do in each stage?
This is what you should do in each stage.
Stage 1 - Do nothing
Stage 2 - Buy the stock
Stage 3 - Start taking profits / do nothing
Stage 4 - Short the stock / do nothing / do not buy the stock
If you have been losing money in the stock market, odds are you have been buying stocks at the wrong time.
Even if your analysis in the daily chart is correct, if you are wrong in the shorter time frame then you are also going to lose a lot of money.
You want to have all time frames to be in alignment.
If you trade the daily charts, look at the 60 min chart.
If you trade the weekly charts, look at the daily chart.
Make sure when you enter the stock the lower timeframe is always conducive.
I do know that even though you know the market stages now, it can be difficult to spot them.
This is where using the 20 MA and 50 MA as a trend following tool will really help you.
Take a look at the 60 min chart of AAPL again.
If you would like to buy this stock for a short term trade, when is a good time to enter this stock?
Answer: When the stock is in a stage 2 uptrend.
November would be a very very good time to buy AAPL for a short term trade. This is because:
The stock is above its 20 MA and 50 MA
The 20 MA has cross back above the 50 MA. A bullish cross occurred
The 20 MA and 50 MA were making railroad tracks. A perfect environment for bullish trend following
Stock Market Stages In The 60 Min Chart Of SPY
Have you heard of SPY before?
No I don't mean the spies that go to other countries and bring back information.
The SPY is the Exchange Traded Fund that tracks the movement of the S&P 500 index. So if you analyze SPY you can know where the S&P 500 is likely to head.
It is always a good idea to do stage analysis on the SPY.
Remember, 75% of stocks follow the direction of the main index.
That way you know when to be bullish on stocks and when to sit on your hands.
Let's test your knowledge a bit now.
Q: If you want to buy stocks, when is a good time to buy stocks?
A: When the SPY is in a stage 2 uptrend
Q: If you want to short stocks, when is a good time to short stocks?
A: When the SPY is in a stage 4 downtrend
Use the 20 MA and 50 MA to guide you.
It is not 100% fail proof but using it will help you be on the right side of the market most of the time.
A stock is in a stage 2 uptrend when it is above its 20 MA and 50 MA
A stock is in a stage 4 downtrend when it is below its 20 MA and 50 MA
Here is something special for you...
The 60 min chart of SPY above is about the same time of the 60 min chart of AAPL above.
When SPY was in a 60 min uptrend in November, notice how AAPL also had a nice run up in November.
Don't believe me?
Go back and check the two charts again.
Always do your stage analysis on the SPY before you trade individual stocks.
Stage And Cycle Analysis In The Commodities Market
What you have learned about the stock market stages and stock market cycles also applies to commodities market.
Why?
The reason is simple.
Commodities are also traded by humans who are controlled by the emotions of fear and greed. Therefore stage analysis can also be applied to the commodities mraket.
If you don't believe me let me show you some examples...
The chart above shows the daily chart of crude oil. See how the market stages workout on the commodity.
The stock went from a stage 1 basing, then a stage 2 uptrend, then a stage 3 top and finally a stage 4 downtrend.
So even if you are not a commodity trader, the lesson that you learn from the stock market cycles can be transferred into the commodity markets.
If you want to buy oil, you now know to only buy it when oil's chart is in a stage 2 uptrend.
The chart above shows the market cycles in gold.
Gold prices went through a stage 4 downtrend. During this time it was a hard time for those who held gold.
Then gold went through a stage 1 basing. It formed a triple bottom chart pattern and this hinted to a trend change.
Soon gold prices broke above a downtrend line and started a new uptrend.
If you learn a bit about chart patterns, you will be able to buy gold prices as it ends the stage 1 and start a stage 2 uptrend.
Learning about bullish reversal chart patterns can help you to participate in the beginnings of the stage 2 uptrend before gold shoots up.
Stage And Cycle Analysis In The Crypto Market
Market cycles and stage analysis also applies to the cryptocurrency market.
If humans trade them, then the stage analysis works.
The chart above shows the weekly chart of Bitcoin where it went from a stage 2 uptrend to a stage 3 market top to a stage 4 downtrend and then stage 1 basing.
At this moment, Bitcoin is still in a weekly stage 2 uptrend.
Dips and breakout are buyable in a stage 2 uptrend.
Summary
Congratulations.
You have just completed one of the most rewarding knowledge in technical analysis.
From now on your life will be different as you learn how to view each market through a different set of eyes.
Always remember the market cycles and act accordingly in each stage.
May success follow you from now on.