Markets are in constant flux. The pricing can resemble a casino game because these changes might perplex the average individual.
The run-down phase is the scariest of them all. A bear market is another term for a market that is falling in value. During this time, the most successful traders make the most money.
The Run-Down Phase
This is the final stage of the stock market cycle, and for most investors, it is a difficult period. Since trading in the stock market is unpredictable, investors must research well before chalking out their trading strategies.
A trading strategy may vary based on the stock portfolio; hence, a keen eye is to be kept for any recent changes in the external environment, as it could affect the stock price.
All about the mark-down cycle
Mark down cycle simply denotes a phase where there is a decline in the buying volume. In simple terms, when the supply exceeds the demand, it is known as the beginning of the mark-down cycle.
The sellers have a tight grip on the situation. The sellers ensure their trading strategy is aggressive.
If a trading stock is unable to hold onto the lows set in the distribution phase, the trading stock will enter the mark-down phase.
The mark-down cycle is also where stocks reach lower highs and lower lows. However, few purchasers are available to match the demand for shares.
Stock prices fall as a result of the lack of demand. Traders who purchase equities during the distribution period rush to sell because they lose money.
Hence, the downtrend is an excellent opportunity for the short sellers. As they try to grab a falling knife and average down, inexperienced traders blow up.
The market may be entering the accumulation phase if we start to see higher lows for a lengthy period.
There might be a complete reversal into the run-up phase if the market begins to make higher highs and lower lows.
How to trade in this phase
Even excellent news and profit reports aren’t enough in a bear market to break equities out of their downturn.
Everything will come crashing down faster than you imagine. If you’re a novice trader, catching the falling knife is the last thing you should try.
Even in a down market, you may still make profitable long trades if you know the appropriate settings. On both the short and long sides, there are several opportunities.
Understand that all long transactions must be executed quickly in the run-down period.
Conclusion
The study of stock cycles will give investors an early warning of a stock’s moving circumstances, whether sideways, up, or down.
Understanding each stage of the stock market cycle is critical for making informed stock purchase and sale choices.
Examining the previous chart trends of certain stocks is a fantastic method to learn about these stages. At each step, various signs can be identified.
You may now use this knowledge to understand how to manage risk. It is wise to manage your investments well and track their progress. Open a free Demat account today and get started on your trading journey!