Phases Of The Stock Market

Just like how businesses go, there are various stages in the investment process. Many investors have made losses from their investments as a result of poor decision making owing to a misunderstanding of this

Ever started an investment and things seem to be going great and then suddenly it starts to crash? Sometimes it’s really not that something catastrophic is going to happen; it’s just exactly how things are and how they have been based on observation.

Just like how businesses go, there are various stages in the investment process. Many investors have made losses from their investments as a result of poor decision making owing to a misunderstanding of this. Just like business cycles, there are four stages the stock market moves in.

In the first phase, the market is down following a recession and many people see the stocks as an opportunity to buy low at discounted rates. This is the phase where investors accumulate stocks with the goal of selling it at a high price. General prices will have crashed or might still be in the process of crashing.

While some are selling to get cut their losses, there are people rushing to pick it up at an amazing discount. Hence, they purchase stocks based on their perception of the potential of the stock.

The second phase is where the stock has started growing and the impatient traders have started cashing out on their investment gains. Market sentiment is still positive towards the stock.

Here, there is a façade of stability and more people are purchasing stock. Valuations seem higher than normal and the possibilities can sometimes make investors become a little bit greedy about the opportunities that abound.

The third phase now has more sellers who are trying to get good gains and the demand and supply role of the market takes its course. The sellers are dominating and this is beginning to affect the price of the stock until it just leads to price volatility.

This is also the part where things that have been bullish are now starting to have mixed sentiments in the market – fear, and hope. The final phase is where things start to crash and people start trying too hard to get what they can out of it. It is the hardest phase for those who still have a position in the market. This is where the overall price of the stock crashes into something that needs to be revamped again and this immediately takes us back to where we were coming from the beginning.

Here, investors can choose to quickly get what they can or where investors leave their investments to go through the cycle again so as not to make huge losses.

Investments go through these phases and then even out into their true stable growth. This is why growth or value investments. In the long run, true growth is found.

Until then, a simple understanding of the cycle for better decision-making is what will keep you on track.

Written by Lawretta Egba.