Why Stock Market Cycles Indicate the Need for Caution

Stock Market Cycles

Stock Market Cycles:  Understanding the Three Stages of the Market

Updated Dec 2022 

As an investor, it’s crucial to understand that the market doesn’t have just two stages – buying and selling. The “sit and wait” stage is a time to hold off on buying or selling and wait for a correction. When the market or specific sectors pull back, the correction tends to be severe, with sectors shedding 50% or more of their value.

The key is to wait for technical indicators to signal a strong buy before making any moves. If technical indicators pull back to oversold ranges, the trend indicator remains positive, and bullish sentiment drops, it’s time to back the truck up and buy. Understanding these three stages of the market and taking a patient

Navigating the Sit-and-Wait Stage for Investors

The sit-and-wait stage is a crucial part of stock market cycles, as it breaks the average investor, especially those who assume their degrees or high IQ give them an edge in the markets. The acronym PhD stands for Doctor of Philosophy, but we have a better acronym at the Tactical Investor; permanent head damage. As that is what most PhDs suffer from, especially those originating from economics.

The only thing that helps with the stock market cycles is having an open mind and understanding mass psychology’s basic principles. Technical analysis provides one with the ability to fine-tune entry points. Astute investors know that the most critical stage in the market is the sit-and-wait stage, otherwise known as the Patience and discipline stage.

Overtrading leads to mediocre gains or losses but more importantly, the stress factor surges by 4X, if not more. Factoring in the extra stress and the damage it causes to one’s health nullifies any of these gains. Astute investors view health as their number one investment; everything else comes in at a very distant second.

Impatience leads to losses.

The Importance of Health in Stock Market Cycles: Making Gains with Patience and Discipline

Does it matter if you make money in the first four months or the last three months of the year? Those who understand this simple principle can generate 20% a year with minimal effort, little stress, and significantly more with a bit of work. In the end, health is the ultimate investment, lose your health, and even if you have a billion dollars, you are worse off than a beggar in good health. On the other hand, if you have optimum health and just 50k to 100K, you can turn that into a small fortune, but you are off to a good start as you still have your health.

The markets experience a correction almost every year. In most instances, when the bullish sentiment soars past the 55 park several times over 60 days, the market almost always lets out a decent dose of steam. Any subscriber with us for 12 months or more knows that Tactical Investors never chase the market or a given stock. We let the market come to us; that is the only way to score massive wins; case in point the COVID crash.

Patience and disciple: Key traits to winning the  game

In the trading world, many investors tend to lack patience and discipline. Instead, they rely on fear and euphoria to guide their trading decisions, often leading to mediocre gains or significant losses. However, the key to successful trading is to have a systematic approach that revolves around patience and discipline.

No change in the Anxiety index and there is a spike in the number of individuals in the neutral camp. This informs that many traders don’t know what to do or expect from the markets, which is bloody good news. When the markets sell off the dumb money will be doing most of the selling while the smart money will be waiting for the fear levels to surge, and then they will come in and start buying. Market Update Dec 31, 2020

At Tactical Investors, our trading methodology focuses extensively on these creeds, and we never chase the market or a given stock. Instead, we let the market come to us, waiting for times of uncertainty to buy and banking profits during times of certainty. This approach is grounded in understanding stock market cycles, which clearly indicate that markets climb a wall of worry and plunge down a cliff of joy.

Why Stock Market Cycles Indicate the Need for Caution

However, the average mindset is wired to lose, and many investors tend to move in the opposite direction of what is necessary for success in stock market cycles. For instance, when the markets crashed last year, we told everyone to buy, but they wanted to do the opposite. Now that we advise holding the gunpowder dry, many investors want to move in the opposite direction again, succumbing to the secret desire to lose syndrome.

In conclusion, certainty about the stock market cycles is probably the best signal that you will get hammered. Therefore, it is essential to have an open mind, check ten times before getting into something, and understand the basic principles of mass psychology to fine-tune your entry points. Moreover, astute investors view health as their number one investment, knowing that overtrading and stress can nullify any gains.

You buy during times of uncertainty and bank profits during times of certainty. Markets never climb a wall of joy; they climb a wall of worry and plunge down a cliff of Joy. Sol Palha 


These articles provide support for the above thesis

  1. “Patience is a Virtue- https://zerodha.com/varsity
  2. “The Importance Of Patience In Forex Trading; https://www.fxstreet.com/education/the-importance-of-patience-in-forex-trading-201606171353
  3. “Trading Discipline: The Key to Consistent Profitability; surge trader
  4. The Importance of Trading Psychology: https://www.investopedia.com/articles/trading/02/110502.asp

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