The maturation cycle has four stages of an asset’s life.

Stage 1: Basing Area (Consolidation)

S1 is when nothing noteworthy is happening. It can last for an extended period, from months to years, and is caused by a poor overall market environment.

Stage 2: Advancing Phase (Accumulation)

The transition from S1 to S2 may begin with little or no warning. There are no major announcements or news. However, one thing is certain: a proper S2 will show significant volume as the asset is in strong demand on big up days, and volume will be relatively light during pullbacks.

Stage 3: Top Area (Distribution)

During S3, the asset is no longer under extreme accumulation. Instead, it is changing hands from strong buyers to weaker ones. Smart money that was bought early when the asset emerged onto the scene is now taking profits, selling into final signs of price strength. As that occurs, buyers on the other side of the transaction are weaker players who know about the asset because it has made such a dramatic run and captured headlines. In other words, the long trade in the asset has become crowded and too obvious.

Stage 4: Declining Phase (Capitulation)

During S4, earnings models are generally revised downward, which puts more selling pressure on the asset. The S4 selling phase may continue for an extended period until it’s finally exhausted, and the asset enters another period of neglect. There are more down days and weeks on above-average volume than up days and up weeks on above-average volume .

What should be expected at Stage 4? A Bear Trap may occur that leads to continuing declining phase up to the consolidation area. Another option, after approximately 50% of the asset correction – a new growth cycle will begin, updating the previous high.

These are two book scenarios.

What scenario do you expect? Write in the comments below!

Best regards, EXCAVO

Most Related Links :
todayuknews Governmental News Finance News

Source link

Back to top button
Native News Post