The Four Market Stages That ALL Markets Go Through

(1) Accumulation / (2) Mark Up / (3) Distribution / (4) Mark Down

  

Once you are able to identify what stage the market(s) are in, you can then trade according to those characteristics.


After a while you won't even have to think about whether you should be long or short. 

You will know, without question, exactly what you should be doing NOW


You will either be focusing on long positions, short positions, 

or you will stay safely in cash - just by glancing at a chart!


On the left is an illustration of  the four stages that stocks (and ALL markets) go through. This happens in all time frames whether it is a monthly chart, weekly chart, daily chart, 

or an intraday chart.

If you make trading the stock (or commodity, bond and / or currency) markets too complicated, then it is just not worth doing.  


Now, take a look at the characteristics of the four stock market stages:


Stage One (Accumulation)

Stage 1 is the stage right after a prolonged downtrend. This stock has been going down but now it is starting to trade sideways forming a base (Accumulation Stage). The sellers who once had the upper hand are now beginning to lose their power because of the buyers starting to get more aggressive. The stock just drifts sideways without a clear trend. 

Everyone hates this stock!


Stage Two (Mark Up / Bull Market)

Finally stocks break out into Stage 2 and begins the uptrend (Mark Up / Bull Stage). This is where the majority of the money is made in the stock market. But here is the funny thing: No one believes the rally! That's right, everyone still hates the stock. The fundamentals are bad, the outlook is negative, etc. But professional traders know better. They are accumulating shares and getting ready to dump it off to those getting in late. This sets up stage 3.


Stage Three (Distribution)

Finally, after the glorious advance of stage 2, the stock begins to trade sideways again and starts to "churn" (Distribution Stage). Novice traders are just now getting in! This stage is very similar to stage 1. Buyers and sellers move into equilibrium again and the stock just drifts along. It is now ready to begin the next stage.


Stage Four (Mark Down / Bear Market)

This is the dreaded downtrend for those that are long this stock. (Mark Down / Bear Stage). But, the funny thing is: Nobody believes the downtrend! The fundamentals are probably still very good and everyone still loves this stock. They think the downtrend is just a "correction". Wrong! They hold and hold and hold, hoping it will reverse back up again. 


They probably bought at the end of Stage 2 or during Stage 3. 


Sorry, you lose. Checkmate!


Stock market stages occur in all time frames on every chart you look at. This could be a five minute chart of Microsoft or a weekly chart of the Dow or a monthly chart of the soybean market – it makes no difference!


Generally speaking:


You want to stay in cash when a stock (or the market itself) is chopping around in Stage one (Accumulation). 


In Stage two (Mark Up / Bull) you will want to be aggressively focusing on long positions. 


In Stage three (Distribution), you want to be in cash. 


In Stage four (Mark Down / Bear), you want to be aggressively focusing on short positions.


That's all there is to it:

Trading with the four stock market stages is comparatively simple when viewed properly!  

MOST OF THE “GUESSWORK” IS REMOVED AND YOU ARE FREE TO PROFITABLY TRADE WITH THE CURRENT TREND!


Two rules for investing/trading:


Rule number one : most things will prove to be cyclical


Rule number two : some of the greatest opportunities for
gain and loss come when other people forget rule number one 

-Howard Mark


  

In other words:


Focus on which stage the chart is indicating that the market is in
          (Stages 1, 2, 3 or 4) so that you can trade without Diversions
            from the financial news, etc.


Remember, the charts have NO AGENDA / alterior motives

they simply show things as they truly are!


Important Note:
Never confuse simplicity with lack of sophistication.
 

Occam's razor: 

When presented with both a complex solution to a situation
and / or
a simple solution to a situation -

MOST OF THE TIME - THE SIMPLE SOLUTION IS THE ONE THAT WORKS BEST!!!


Simplicity in process {the trading process} has made {and will continue to make} phenomenal amounts of money in the markets from very simple decisions that experienced traders are willing to make.  


Do NOT fear uncertainty - embrace it, as it will always exist -
because by the time the trader is certain of something -
the price move / opportunity will have already slipped away!


Many are looking for highly complex ways of interacting with the markets,
when most of the time it's only the simple ones that are going to work!


Risk Management is an essential component of Trading - 

for more details on this important subject:


Trader Screen Stock & Commodity Overview Report