What is Market Cycle?
A market cycle is the natural pattern of expansion and contraction in financial markets, moving through four phases: accumulation, uptrend (markup), distribution, and downtrend (markdown).
Market Cycle Explained
Understanding market cycles helps traders align their strategies with the current market environment. In accumulation, smart money is buying while most traders are bearish. In markup, the trend is up and momentum traders thrive. In distribution, smart money sells to latecomers. In markdown, prices fall and short sellers profit. The challenge is identifying which phase we're in — it's only obvious in hindsight.
Real-World Example
After a prolonged bear market, trading volume dries up and prices stabilize — this is the accumulation phase. Savvy traders begin building positions. As prices start rising and volume increases, the markup phase begins. The media starts covering the rally, attracting retail buyers — often near the distribution phase, when smart money is already selling.
Related Terms
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