The Smart Money Market Cycle

This post will be covering market cycle theory from which the smart money (institutions, hedge funds, whales etc.) implements to try and always make a profit and to try and influence the retail investor to do the opposite investing decision. Hopefully for a newer investor this can help them understand the psychological factors within the market.

This post will try and simplify the market psychology stages that occur whether large or small across different markets. Smart money has the capital, resources and time to take advantage of these cycles that retail investors simply don’t have.

If anyone is interested in previous past posts please see:

Fundamental Research on projects: here

What is a cryptocurrency wallet: here

Staking: the concepts of PoS: here

What is the blockchain: here

Trading strategies: here

Fundamental analysis: here

Sentiment analysis: here

Mobile device security education for crypto: here

STAGE 1: ACCUMULATION PHASE

This is essentially where the market has bottomed out, and the best opportunities are available. This is where smart money generally start to slowly buy back into the market and doing the contrarian thing amongst the investing community. Sentiment across the market tends to be extremely fearful and bearish. Due to the natural fact this stage is where the market has bottomed out many general investors will have uncertainties whether or not the worst of it is over. Moreover, the narrative within the media outlets are highly negative suggesting fear, uncertainty and doubt is ripe across the markets. Eventually, the markets shift from negative sentiment and more positive indicators point towards a neutral stage. This enters the second stage of the cycle.

STAGE 2: MARK UP PHASE

This is split into 3 further sub phases:

• Early mark up: this period of time occurs in the market at the later stages of the accumulation phase where market growth starts to pick up. Sentiment starts to shift and media outlets start to publish articles surrounding recoveries and the worst may be over. However, there is still some elements of uncertainties and sentiment tends to be neutral.
• Mid mark up: this is where the sentiment shifts into bullish and the market starts to see further exponential growth with more investors piling back into the market. Media outlets will publish highly bullish news surrounding the market and price movements. This stage is typically when the accumulation phase investors tend to take profits and ease their way out of the market to avoid an overheating market. Greed is starting to take over.
• Late mark up: this is the stage in the market where growth rate starts to level off. This is typically where some investors who haven’t entered the market for whatever reasons whether being new or by choice, tend to start entering into the market, this is where the market sees unprecedented price propulsion upwards as investors pile as much capital into the market as possible due to the fact there’s no end in sight for an upwards price trend and are fearful of missing out for the next big price move. This is where the sentiment turns from greedy to euphoric. This leads to the penultimate stage.

STAGE 3: DISTRIBUTION PHASE

This is where the euphoric sentiment across the market turns mixed as sellers start to heavily dominate the market. This is where high emotions tend to be experienced as uncertainty, hope for a continuation and even greed with short term upwards price actions are experienced. Furthermore, this is where investors tend to remove themselves from the market to try and protect profits, break even or avoid large losses and leads to the final stage.

STAGE 4: MARK DOWN PHASE

This is where sentiment starts shifting bearish, investors will feel regret for not selling their investment sooner or at least taking profits when they could have. This is probably the hardest phase for investors as the price deterioration tends to be large. Investors may hold onto their assets in the hope of a recovery and some may eventually sell their investments at a loss. Other investors may continue to hold their investments during this phase but experience the doom and gloom effect from the market sentiment and negative media articles. This is where there are no signs of a recovery but neatly cycles back into the accumulation phase. History has shown that eventually the prices will bottom out as those accumulation investors are willing to buy back into the market.

What does all this mean? Well it’s important to note other markets may be in different parts of the cycle. When one market may be in the mark up phase, another market may be in the accumulation phase. This is where ultimately smart money takes their financial opportunities and so can we. Furthermore, by understanding the larger picture through these cycles can help give you an indication alongside other indicators whether technical, fundamental on chain or sentiment analysis where the market is currently.

If you want to learn more in depth about these cycles then you can research about the Wyckoff market cycle to learn more about the laws and schematics. This post has only covered the phases of the method.

As always any topics you want covered just let me know. The following are topics I have on my list:

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