»Profit Hunter by Equitymaster

On This Day - 23 OCTOBER 2020
One Cycle that Defines Everything in Markets

Apurva Sheth, Editor,Profit Hunter Pro

I've been writing about cycles over the last few months.

I've covered cycles across time frames and asset classes like the 8-year cycle in Sensex. It can even help you identify multibaggers.

You can watch the video.

Apart from this I have also written about the 32-month cycle in Auto index, the 22-month cycle in Metal index, and the hidden patterns in bitcoin as well as gold.

Despite writing so much on cycles over the last few months I'm guilty of missing the most important cycle of all.

This cycle defines everything in markets.

If you could master this cycle, then nothing can stop you from making huge profits.

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All publicly traded financial securities repeatedly go through this cycle without fail.

The Four Phases in a Cycle

I have illustrated below the four phases that a stock goes through during its life cycle. The cycle repeats itself after the stock goes through all these four stages.


Stage 1: Accumulation

This is the first stage in the cycle of the stock. The stock consolidates in a range after a prolonged downtrend. It finds buying interest near the lower end of this range.

Value investors who find the stock attractive enter when the general mood of the majority is still negative.

Stage 2: Uptrend

In the second stage, the market condition improves, and the negative sentiment begins to recede.

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The stock starts trading above its most recent highs. It begins forming higher tops and higher bottoms. This attracts momentum investors into the stock.

Stage 3: Distribution

The strong uptrend in the previous stage attracts common public in the stock. At the same time, smart investors start reducing their positions gradually.

Every successive rally now becomes difficult to come. Falling volumes on rallies gives us an indication of the exhaustion of the trend.

Stage 4: Downtrend

Lack of a substantial upmove unnerves buyers. They become restless and exit the stock at negligible profit or at a loss.

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There are several who think on similar lines. They start selling their stock at lower prices. Falling prices attract short sellers who drive the prices further down at greater speed.

The stock eventually bottoms out and starts trading in a range giving birth to a fresh cycle. Stage 1 resumes once again.

So, this a trader's perspective of the most basic and important cycle in the markets based on price action. But that's not the only cycle that exists in the market.

A business also goes through a similar lifecycle. There are four phases in the business life cycle just like a stock: start-up, growth, maturity, and decline.


A stock's life cycle offers opportunity to make money to all types of investors in each phase.

You should take advantage of it.

Warm regards,


Apurva Sheth
Senior Research Analyst, Fast Profits Report
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Tanushree was live at the Explosive Profits Summit yesterday. Watch it here...

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