stock charts statistics

Trading stocks information - General tactics and examples

There are only three things a stock can do. It can go sideways, up or down. That is all! However, we will cover two kinds of sideways movement. Sideways movement will either lead to an uptrend or a downtrend. Therefore, we will be discussing four stages of a stock cycle.

4 Stages of the Stock Market Cycle

Stage 1 and Phase A

During the flat, or beginning, stage (Stage 1) of a stock's cycle, the market psychology is one of ambivalence or uncertainty. If a stock is moving in a flat or sideways tight pattern would you want to buy it? A trader will be looking specifically for a transitional phase (Phase A), which will give her information about which way the stock might move next.

Stage 2 and Phase B

During the upward movement stage (Stage 2) of a stock, market psychology changes to basic greed. Everyone is jumping in and wants to stay in, even if the stock changes direction. A trader learns to read the signs of change that tell him the stock has entered another transitional phase (Phase B). During Phase B, a trader will learn to move out of the long position and consider other possibilities, for example, entering and exiting a stock more quickly as the stock begins to move in a sideways movement.

Stage 3 and Phase C

During the sideways movement stage (Stage 3) of a stock, market psychology once again becomes one of ambivalence and uncertainty. Look for another transitional phase (Phase C), which will clearly illustrate that the stock might be moving into another stage or downward direction.

Stage 4 and Phase D

The last possible movement is the downward movement stage (Stage 4) of a stock. The market psychology is fear. Until the stock begins to bottom out and change direction into a transitional phase (Phase D), market sentiments are still clearly based in fear.

These stages and transitional phases continually repeat themselves over and over as the stock builds its personal history. A trader will learn to recognize and use this information to safely make money on the inevitable change a security will make.

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Some chart technicians pay attention to minute stock cycles. Even if you take a position that not a lot of attention needs to be placed on this endeavor, it is important to know the basic cycle direction of the stock. There is one cycle day indicator to discuss more thoroughly, the 3, 5 and 8-day pattern.

Every rising stock must decline from time to time. Stocks that are generally in an up trend tend to stop declining on the third, fifth, or eighth day down. Why? Who knows! A look at the history of a stock illustrates the theory. When a rising stock starts to fall, look for a turning point on the third day. If the stock does not turn on the third day, look for it to turn on the fifth day. If the fifth day fails to produce a halt in the descent, the odds are that a strong bounce will occur on the eighth day, especially if the history of the chart indicates this behavior. If other indicators verify a possible entry, coupled with the market minder telling the trader this is the day for the stock or sector to change direction, look at the days down, and the trader might have an entry point.

This concept works best on rising stocks. Flat to declining stocks require other indicators. Look for two previous turning points to occur on either the third, fifth or eighth day down. Never use this method as a stand-alone technique if the third, fifth and eighth day down method is not the stock’s history. Instead, does the stock use a different number of days? If so, it is unusual, but not difficult to trade. Count the days the stock does respond to and look to trade there. However, most stocks, for unknown reasons, typically trade on the third, fifth, and eighth day down.

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