Markets don’t move in straight lines. They rise, fall, recover, and repeat - often in recognizable phases. Understanding market cycles helps investors make informed decisions, manage emotions, and stay committed to long-term goals.
A market cycle is the natural rise and fall of market prices over time. While the exact length and triggers can vary, most cycles follow a pattern of growth, peak, decline, and recovery. These movements are driven by investor sentiment, economic data, interest rates, inflation, and global events.
The market has bottomed out, pessimism is high, but smart money begins buying undervalued assets. Prices are stable or slowly rising.
Optimism grows, earnings improve, and prices increase steadily. Retail investors join in. This is typically the longest and most profitable phase.
The market reaches a peak. Valuations are high, growth slows, and early investors start selling. Volatility increases and sentiment becomes mixed.
Fear dominates. Prices fall sharply, often triggered by economic downturns or crises. Eventually, the cycle resets as value re-emerges.
Market cycles affect everything from stock valuations to investor psychology. Knowing which phase you're in can help you:
