Market Phases
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All markets, and certainly the share market go through phases that can be identified.
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You will find the four central phases of the share market to be accumulation,
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distribution, expansion and contraction. I have included an example of each below:
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Accumulation
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Accumulation generally takes place in a low sideways trending market and also
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during an uptrend. Accumulation often develops when a stock has finished a down
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trend and the market has found equilibrium (similar number of buyers an sellers) At
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this point there are often institutional and long term value investors that have interest
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in the stock as it would often be undervalued at this time based on fundamentals.
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Distribution
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Distribution generally takes place in a high sideways market and also during a
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downtrend. And converse to accumulation, distribution occurs when a stock has
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finished an uptrend and is beginning or is now perceived to be over valued by the
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institutional and long term value investors based on its fundamentals.
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Often distribution happens when the stock is still in favour with the general
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public/media etc which means there are still plenty of willing buyers in the market.
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However the distribution phase is the worst time to be buying a stock as a downtrend
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often follows.
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Note: Accumulation and expansion phases on Union Pacific weekly chart.
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Expansion
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Expansion occurs during an uptrend when there is disequilibrium in the market and
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there are many more buyers than sellers. The share price often increases
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dramatically and quickly. I have included below an example of a share during an
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expansion phase. In order to profit from the expansion phase we use analysis and
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theories like trend lines, Dow and Elliot wave theory.
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Contraction
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Contraction occurs during a downtrend when there is also disequilibrium in the
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market and there are many more sellers than buyers. The share price often
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decreases dramatically and quickly. I have included below an example of a share during a contraction phase
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