
Both forex and cryptocurrency markets follow distinct cycles that influence price movements. They are driven by supply and demand, trader psychology, and external factors such as economic data or technological developments. Understanding them helps traders identify opportunities and minimise risks.
Recognising their different phases is crucial for improving your strategies. If you are trading currency pairs or digital assets, these patterns provide a roadmap for navigating volatility effectively.
What Are Market Cycles?
The term refers to the recurring patterns of price movement in financial markets. They consist of different phases that reflect traders’ overall mood and actions. These cycles occur due to shifts in sentiment, economic conditions, or technological advancements in the case of crypto.
The typical market cycle includes four phases — accumulation, markup, distribution, and markdown. Each of them offers unique opportunities and challenges, which makes it essential for traders to understand and adapt to them.
Phases of Market Cycles
Accumulation
The accumulation phase occurs after a downturn, when prices stabilise, and smart money begins to enter the market. Traders with long-term outlooks often use it to position themselves before the next uptrend. During this phase, trading volumes are low, and sentiment is neutral or cautious. Recognising accumulation allows traders to plan early entries into potential uptrends.
Markup
The markup phase is characterised by rising prices and increased market activity. Positive news or economic indicators often drive this phase and attract more participants. Traders often join during this phase to capitalise on the momentum. It is essential to monitor resistance levels and avoid entering too late, as prices may begin to plateau.
Distribution
In the distribution phase, prices reach a peak, and early investors start to exit their positions. Market sentiment shifts from optimism to uncertainty, and trading volumes often rise due to increased selling pressure. Recognising it helps traders avoid a potential downturn. It is also an opportunity to take profits before the next phase begins.
Markdown
The markdown phase sees declining prices as selling pressure outweighs demand. Market sentiment turns bearish, and traders often look for short-selling opportunities. For long-term investors, this phase may signal the time to exit or prepare for the next accumulation phase. Staying alert to signs of stabilisation helps traders anticipate recovery.
How to Apply Market Cycle Knowledge
- Monitor volume: Changes in trading volume signal transitions between phases.
- Combine indicators: Use tools like RSI and moving averages to confirm cycle phases.
- Stay updated: Follow news and events to align strategies with external factors.
- Be patient: Wait for clear signals before entering or exiting positions.
Understanding market cycles in forex and crypto trading is essential for navigating price fluctuations. It enhances both short-term gains and long-term success in trading.