Posted on August 5, 2025

 

Market Cycles: Identifying Where We Are and What's Next

Market cycles govern everything we see in financial markets, yet many traders miss these powerful patterns, focusing instead on short-term noise. At Galaxydoc Market, we've spent decades studying how these cycles unfold across different time frames and asset classes. Understanding where we are in the current market cycle—and more importantly, what typically comes next—gives traders a significant edge in positioning for profit while managing risk. This knowledge forms the foundation of our trading approach, helping our community navigate everything from day-to-day volatility to major market transitions. Let's explore how you can identify key cycle phases and prepare for what's ahead.

 

The Four Phases of Market Cycles

Every market cycle consists of four distinct phases: accumulation, markup, distribution, and markdown. Each phase has its own psychological characteristics, trading volume patterns, and technical indicators that help us identify where we stand. The accumulation phase typically occurs after a significant decline when institutional investors begin buying assets at discounted prices. During this phase, the market appears to be moving sideways with no clear direction, causing many retail traders to lose interest. However, careful analysis of volume patterns reveals increased buying on dips—a key signal that smart money is accumulating positions.

The markup phase follows accumulation and represents the longest and most profitable segment of the market cycle. This is when prices rise steadily, breaking through previous resistance levels and establishing new support. Technical indicators like the PPO (Percentage Price Oscillator) show strong momentum during this phase, and our proprietary PPO/ADX Crush Indicator often signals excellent entry points for both swing and position trades. The public gradually becomes more interested as prices rise, with media coverage turning increasingly positive. This phase requires discipline to avoid the temptation of taking profits too early, as the strongest moves often come in the latter stages of markup.

Distribution occurs when institutional investors begin selling their accumulated positions to eager retail traders who have finally become convinced the bull market will continue indefinitely. This phase is characterized by increased volatility, narrowing market breadth (fewer stocks participating in rallies), and divergences between price and momentum indicators. Our Rampage Method of divergence trading becomes particularly valuable during this phase, as it helps identify the disconnection between price action and underlying market strength. The distribution phase often includes several failed breakouts and sharp reversals that shake out weaker hands before the final trend change occurs.

The markdown phase completes the cycle as prices fall and previous support levels are broken. Trading volume typically increases during sharp declines, followed by weak rebounds on lower volume. This phase presents opportunities for prepared traders using short positions or defensive strategies, while those caught unprepared often make emotional decisions that compound losses. Understanding that markdown phases are natural parts of market cycles—not permanent conditions—helps maintain the psychological resilience needed to begin looking for the next accumulation phase while others remain fearful.

 

Time Frame Relationships in Market Cycles

One of the most powerful concepts in cycle analysis is the relationship between different time frames. Markets move in cycles within cycles, with smaller cycles creating the structure of larger ones. Day traders might focus on cycles that complete within hours, while investors track cycles spanning years or decades. The key to consistent trading success lies in aligning your strategy with the dominant cycle for your preferred time frame while remaining aware of where that cycle sits within larger patterns.

For example, a weekly chart might show we're in a broader accumulation phase after a significant correction, while the daily chart reveals a complete mini-cycle of accumulation, markup, distribution, and markdown within that larger sideways range. Understanding these relationships helps avoid the common mistake of fighting against the dominant trend. We've found that traders who align their positions with both the intermediate and longer-term cycles significantly improve their win rates and risk-reward ratios.

Technology has transformed how we track these cycles. Our analytical approach incorporates both classic cycle theory and modern quantitative methods to identify where different markets stand in their respective cycles. By tracking correlations between related markets—such as how bond yields, currency values, and commodity prices interact with equity markets—we can better anticipate turning points. For instance, when we observe cycles in the Dollar Index reaching extremes, we often see corresponding cycle turns in international markets and commodities within specific time windows.

The psychological component of market cycles cannot be overstated. Each phase creates its own emotional backdrop that influences trader behavior. The fear dominant in late markdown phases eventually gives way to disbelief during accumulation, which transforms into optimism and eventually euphoria during markup phases. By recognizing these emotional patterns in market sentiment indicators and media coverage, we can better gauge where we stand in the current cycle. This awareness helps us maintain the psychological discipline to buy when others are fearful and exercise caution when others show excessive optimism.

 

Applying Cycle Analysis to Current Market Conditions

The current market environment provides a textbook case study in cycle analysis application. After the sharp markdown phase seen during the COVID crisis, markets entered a powerful markup phase driven by unprecedented monetary stimulus. This markup eventually showed classic distribution signals, including narrowing market breadth, increasing divergences between price and momentum, and extreme sentiment readings. Our PPO/ADX Crush Indicator captured several key turning points during this transition, allowing our community members to adjust their positioning ahead of significant moves.

What makes the current cycle particularly interesting is the rotation between different sectors and asset classes. While the broader market follows its own cycle, individual sectors often move through their cycles at different rates. For example, we've observed technology stocks showing distribution phase characteristics while more traditional value sectors displayed early markup behavior. This rotation creates opportunities for traders who understand how capital flows between sectors at different points in the broader market cycle.

The interest rate cycle has become increasingly important in the current environment, as central bank policies directly impact market liquidity and risk appetite. By tracking where we stand in both the interest rate cycle and the economic growth cycle, we can better anticipate which sectors are likely to outperform in the coming months. The relationship between these cycles creates a roadmap for rotating capital to the right places at the right times, rather than trying to fight against powerful cyclical forces.

Geographic diversification also plays a role in cycle management, as different global markets often reach cycle turning points at different times. By monitoring international markets through both technical and fundamental lenses, we can identify regions entering favorable cycle phases before they become obvious to the broader market. This approach requires patience and discipline, as emerging opportunities may take time to develop, but the rewards for correctly identifying early-stage cycles in undervalued markets can be substantial.

 

Preparing for the Next Phase

The key question for any trader or investor is not just where we are in the current cycle, but how to position for what comes next. This forward-looking approach distinguishes successful market participants from those who merely react to past movements. By combining our understanding of typical cycle progression with current market signals, we can develop high-probability scenarios for the months ahead and position accordingly.

Risk management becomes particularly important during cycle transitions, as these periods often bring increased volatility and failed signals. We advocate for position sizing that acknowledges where we stand in both shorter and longer-term cycles, adjusting exposure to match the clarity of current signals. This might mean reducing overall exposure during late distribution phases while maintaining strategic positions in sectors showing early accumulation characteristics.

The psychological preparation for cycle transitions is equally important. Having a plan for different scenarios helps prevent emotional reactions to market movements. Our community discussions focus heavily on maintaining discipline through cycle changes, as these are often the periods where the biggest mistakes occur. By understanding that discomfort is normal during transitions, traders can maintain the patience needed to await clear signals rather than forcing trades based on hope or fear.

Trading education takes on added importance when preparing for cycle transitions. The technical tools that work well during a strong markup phase may prove less reliable during distribution or accumulation phases. This is why our approach emphasizes adapting analytical methods to match current market conditions rather than applying the same techniques regardless of where we stand in the cycle. The Galaxydoc Method teaches traders to recognize these transitions and adjust their trading approach accordingly.

As we navigate the current market environment, applying cycle analysis gives us both context for recent movements and a framework for anticipating what comes next. The markets never stop cycling, but traders who understand these patterns can position themselves advantageously through each phase. If you're interested in developing your own cycle analysis skills or want to discuss how current market cycles might affect your trading approach, reach out to us at [email protected]. Brandon Kim's 32 years of experience trading through multiple market cycles provides valuable perspective that can help you navigate whatever the markets bring next.