The four key stages of the markets every serious trader must know

The markets are always changing. It moves from a period of trend to range, and
range to trend.
You can break it down further into 4 stages:
1. Accumulation
2. Advancing
3. Distribution
4. Declining

Stage 1: Accumulation phase
Accumulation usually occurs after a fall in prices, and it looks like a consolidation
period.
Characteristics of an accumulation phase:

• It usually occurs when prices have fallen over the last 6 months or more
• It looks like a long period of consolidation during a downtrend
• The 200-day moving average tends to flatten out after a price decline
• Price tends to whip back and forth around the 200 day moving

It looks something like this:

2-1

Stage 2: Advancing Phase
After the price breaks out of the accumulation phase, it goes into an advancing
phase (an uptrend).
Characteristics of advancing phase:
• It usually occurs after the price breaks out of the accumulation phase
• The price forms a series of higher highs and higher lows
• Short term moving averages are above long term moving averages (e.g., 50
above 200 day ma)
• The 200 day moving average is pointing higher
• The price is above the 200 day moving average

It looks something like this…

2-2

Stage 3: Distribution phase
Distribution usually occurs after a rise in prices, and it looks like a consolidation
period.
Characteristics of distribution phase:
• It usually occurs when prices have risen over the last 6 months or more
• It looks like a long period of consolidation during an uptrend
• The 200-day moving average tends to flatten out after a price decline
• The price tends to whip back and forth around the 200-day moving average

It looks something like this:

2-3

Stage 4: Declining phase
After price breaks down as a result of the distribution phase, it goes into a declining
phase (a downtrend) and consists of lower highs and lows.
This is the stage where traders who do not cut their losses become long term
investors.
Characteristics of declining phase:
• It usually occurs after the price breaks out of a distribution phase
• The price forms a series of lower highs and lower lows
• Short term moving averages are below long term moving averages (e.g. 50
below 200 day ma)
• The 200 day moving average is pointing lower
• The price is below the 200 day moving average

It looks something like this…

2-4

So, above mentioned are the 4 stages of the market are, and the key characteristics to look out for.

Comment box