What is a Market Cycle?

What is a Market Cycle?

A market cycle describes the recurring pattern of price behavior across four distinct phases: accumulation, markup (uptrend), distribution, and markdown (downtrend). Markets move through these phases repeatedly, driven by shifts in supply and demand, sentiment, and institutional positioning. Understanding where the market sits within the cycle helps traders select appropriate strategies and avoid fighting the dominant phase.

The Four Cycle Phases

• Accumulation: Smart money quietly builds positions after a decline. Price trades sideways in a range as sellers exhaust and buyers accumulate at favorable prices. Volume is moderate and volatility low.
• Markup (Uptrend): Price breaks out of accumulation and trends higher as demand overwhelms supply. Public participation increases, momentum builds, and the trend attracts more buyers.
• Distribution: Large players scale out of positions near highs. Price moves sideways as institutional sellers offload to late-arriving retail buyers. Volatility increases and sentiment reaches extremes.
• Markdown (Downtrend): Price breaks down as supply overwhelms demand. Panic selling accelerates the decline, eventually exhausting sellers and setting up the next accumulation phase.

Trading the Cycle

• Strategy alignment: Use trend-following methods during markup and markdown, and range/mean-reversion strategies during accumulation and distribution.
• Position sizing: Build positions gradually as new phases emerge. Maximum exposure during clear trends, reduced size during transitional phases.
• Expectation management: Strategies profitable in one phase often fail in the next. Adapt rather than force old methods onto new conditions.
• Phase transitions: The shift from one phase to another offers the highest-probability setups but requires patience to confirm.

Advanced Guidance

Build a repeatable, rules‑based process so decisions are consistent across sessions and instruments. Start from context (higher‑timeframe structure, positioning, macro tone), then define precise triggers and invalidation on execution charts. Track spread and depth so your order type matches conditions. Pre‑compute scenarios (breakout, fakeout, mean‑revert) and map actions for each to reduce hesitation.

Execution Framework

• Plan entries at levels with confluence (structure, momentum, time‑of‑day).
• Place stops beyond the logical invalidation, not arbitrary distances.
• Target at least 2–3R; scale out methodically and trail remainder.
• Avoid thin liquidity windows unless the setup explicitly requires it.
• Record slippage and spreads; poor fills can erase edge.

Review Loop

• Journal setups by session and pair to learn where they excel.
• Tag trades by catalyst (news, trend continuation, range breakout).
• Recalculate expectancy monthly; prune underperforming variants.

Risk Controls

Keep daily loss limits, reduce size after consecutive losses, and pause during regime shifts. Survival enables compounding; treat discipline and execution quality as part of your edge.