There is one constant that we experience as traders that never fails... time continues to march forward!

Patience and knowledge are the most valuable tools we have as investors. The longer we can participate, the more and more chances of success we possess. The more chances of success means we can continuously spread our wealth over time. Wealth comes in many forms, wealth of knowledge will be your greatest ally. In this article we will discuss the mindsets of market participants both large and small during market phases. By learning to recognize these different phases, you will become a more knowledgeable trader because you will know when to apply a particular style of trading.

Accumulation Phase:

• The accumulation phase is a stage of consolidation. There is no clear trend, and the asset is usually trading in a range. It’s a span of time in which traders and institutions are slowly accumulating value, while the market has not broke out yet. It’s also referred to as a “basing” period. It begins after the completion of a downtrend where the sellers have started to let up and short sellers have started to take their profits. You will see these in stocks, ETFs, crypto, Forex, and all other financial markets.

• The accumulation phase is a period of consolidation following a downtrend but precedes an uptrend. It will take some time to work out all of the sellers in the market. This phase can take weeks and months to complete, so have the patience for the right entry. During this period there is a contraction of price range, and no real edge for day traders. You can still take trades during this period, but be sure to take them with smaller size until a trend is confirmed.

• The longer the period of consolidation and basing, the more likely that the market bottom is in, and you can know that the accumulation phase is about to end. Negative news will often no longer affect the market. Once you have seen a long period of consolidation all it can take is one decent press release or piece of news to take assets out of this range and start an uptrend in the market. Once a key level of resistance is broken and you start to see higher lows and high relative volume pouring in.

Indicators:

• Moving averages will give conflicting signals during this period, a tell-tale sign that the market is not trending or has come to a conclusion of bearish action at a bottoming zone. Usually, the longer the accumulation period, the more explosive the run-up once a break out begins. In Bitcoin specifically the last bear market lasted 2.5 years after having a monster run up to $20k
• RSI will remain in weak territory under 50 on the Daily Timescale and often times finding resistance above 50 with consolidative bearish divergences.
• MACD will remain under the 0 line for extended periods of time with continuously negative momentum on the histogram bars.

Trader Phycology:

Volume also pertains to market psychology, a broad subject because there are many more trading indicators that gauge the market's psychological state. When market volume is high, traders losing money in their positions can feel the sharp sting of their losses. To alleviate the pain, they may quickly close their positions at a loss. As losers exit the market, a trend based on high volume is likely to be short-lived. However a trend based on moderate volume can last a long time since small losses can accumulate over time.

Distribution Phase:

In the Distribution phase of the market cycle, sellers begin to dominate. This part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns into a mixed sentiment. Prices can often stay locked in a trading range that can last a few weeks or even months. Distribution is the exact opposite of Accumulation. It’s a sideways/range bound market activity that happens after an extended uptrend. Traditionally this is the phase where smart money traders and big institutional players try to distribute or sell off their positions without moving the prices too much to the downside. This is often not the case in crypto, consolidation happens much more suddenly. We see time and time again through historical price action distribution and re-accumulation

The distribution phase is a very emotional time for the markets, as investors are gripped by periods of complete fear interspersed with hope and even greed as the market may at times appear to be taking off again. Valuations are extreme in many issues and value investors have long been sitting on the sidelines. Usually, sentiment slowly but surely begins to change, but this transition can happen quickly if accelerated by a strongly negative geopolitical event or bad economic news.

Absorption Phase:

At this stage, the market has been stable for a while and is beginning to move higher. The early majority are getting on the bandwagon. This group includes technicians who, seeing the market is putting in higher lows and higher highs, recognize market direction and sentiment have changed.

Media stories begin to discuss the possibility that the worst is over, but unemployment continues to rise, as do reports of layoffs in many sectors. As this phase matures, more investors jump on the bandwagon as fear of being in the market is supplanted by greed and the fear of being left out.

As this phase begins to come to an end, the late majority jump in and market volumes begin to increase substantially. At this point, the greater fool theory prevails. Valuations climb well beyond historic norms, and logic and reason take a back seat to greed. While the late majority are getting in, the smart money and insiders are unloading.

Trader Phycology:

As prices begin to level off, or as the rise slows down, those laggards who have been sitting on the sidelines see this as a buying opportunity and jump on in masse. Prices make one last parabolic move, known in technical analysis as a selling climax when the largest gains in the shortest periods often happen. But the cycle is nearing the top. Sentiment moves from neutral to bullish to downright euphoric during this phase. We have seen almost year of consecutive sustained bullish price action in cryptocurrency up until just recently. The period of time between resets can often seem quite slow for the swing or position trader but is quite necessary for such a new asset class.

Insights:

Forms of Accumulation and Distribution such as Wycoff's method never cease to surprise us with their striking resemblance to market events. We just witnessed something absolutely unprecedented from Bitcoin in comparison to any market in its given time frame. Consolidation can take long amounts of time to catch up to the sustainable price of the corresponding assets. In the BTC/USDT chart below, notice how the sideways macro consolidation for the breakout from $20k to $64k took 550 days . While there is action in-between the range it largely remained in sideways in an Accumulation phase. We see this time and time again. This is the time to better your understanding of markets, cultivate knowledge and remain vigilant. Do not let this market play with your emotions, capitalize when and where the analysis will allow for your own risk tolerance. Sideways action can feel like No Mans Land at times but the more we all put our minds together the more unstoppable we become. Cheers!

Stay Strong Friends