Stock market cycles are commonly defined as long term price patterns or trends in a specific market. The “stock market” is a general term for a global, national, or regional set of market exchanges, many of which are tied together through the emerging international finance system. Market cycles are part of the overall analysis of these greater markets. Investors and finance professionals offer practice some kinds of analysis of market cycles that influence their trading decisions.
When beginners look at the existence of stock market cycles, they often take advantage of good guidance from experienced traders about the difficulty of timing the markets. Timing the market means anticipating some of the long term price patterns discussed above. The problem is that these larger market trends are often extremely difficult to detect in a set of exchanges or market system.
Those who are looking at stock market cycles also need to look at the greater economic context of the markets. Those who have followed the stock market for a while know that larger financial crises and events contribute to a change in the markets that dwarfs any “naturally occurring” stock market cycles. Apart from these greater influences, some professionals can identify a kind of boom and bust stock market cycle that correlates to the bullish or bearish sentiments of the common trader. One manifestation of this is when experts talk about market corrections, which are generally parts of stock market cycles that create a sharp downward trend after buyers have overbought a market.
Aside from any general boom and bust cycles, experts have also identified specific kinds of other stock market cycles. Some of these are seasonal cycles, where trading can increase during peak months or seasons of the year. Others have to do with electoral cycles or other national events within the country where the considered exchanges are located.
Traders will often make stock buying and selling decisions based on greater stock market cycles along with other technical analysis. This is true whether the stock holder is buying and selling in a day trading strategy, for short term gains, or in a buy and hold strategy, which seeks longer term gains. Traders will often try to buy stock on a greater down cycle, as well as at points where a particular stock is undervalued. Combining large and small down cycles can contribute to an opportunity to get a stock at a bargain or a "fire sale" price. Looking at stock market cycles helps a variety of individuals to seek the most profit from trading.
