In 2021, everyone was a genius. Stocks went up every week. Crypto hit all-time highs. People quit their jobs to trade full-time. In 2022, those same people lost 60% of their money and swore off investing forever.
Neither reaction was rational. Markets move in cycles. Understanding where you are in the cycle is the difference between buying high and selling low — and the opposite.
The Four Phases
1. Accumulation — The market has been down for a while. News is terrible. Most investors are scared. Smart money starts buying quietly. Prices stop falling and start moving sideways.
2. Markup (Bull Market) — Prices start rising. News improves. More investors notice. The uptrend gains momentum. By the middle phase, everyone is bullish. Late in the phase, even your uncle who never invests starts asking about stocks.
3. Distribution — Prices are high. News is still good. But the smart money is selling to the latecomers. The market oscillates — makes new highs, then falls back, makes new highs again. Volume is high but the momentum is fading.
4. Markdown (Bear Market) — Prices start falling. News turns negative. Panic selling begins. Everyone tries to exit at once. The media calls it a crash. The cycle repeats.
How to Tell Which Phase We're In
You can't know exactly. But you can make a good guess:
- Bull market signs: Rising 200-day moving average, high IPO activity, bullish headlines, everyone you know is investing
- Bear market signs: Falling 200-day moving average, companies cutting guidance, layoffs in financial media, your friends stopped talking about stocks
- Transition signs: High volatility, mixed news, conflicting signals — usually means we're between phases
What to Do in Each Phase
Accumulation: Invest consistently. This is when stocks are cheapest, but it feels the scariest. Set up automatic investments and ignore the news.
Markup: Keep investing. Don't increase your exposure because prices are rising — that's how you buy high. Stay disciplined with your regular contribution amount.
Distribution: Don't chase performance. Rebalance your portfolio if certain positions have grown too large. Raise some cash if you're uncomfortable.
Markdown: Don't panic sell. If anything, this is the best time to buy. The best returns in market history came from buying during bear markets. It just doesn't feel like it at the time.
The Most Important Lesson
Market cycles are normal. The S&P 500 has gone through 27 bear markets since 1928. It recovered every single time. If you try to time the cycles, you'll get it wrong more often than right. The investors who do best aren't the ones who predict the cycles. They're the ones who stay invested through the cycles.
DCA is the simplest way to do this automatically. Read our DCA guide for the full breakdown.