Using Moving Averages to Identify the Four Stages of the Market Cycle
Moving averages can be employed to define the four major stages of the typical market cycle (see Chart 3.4). This identification leads readily to logical portfolio strategies that accompany each stage.
Chart 3.4. The Four Stages of the Market Cycle
Chart 3.4 shows the four stages of the market cycle: rising, topping, declining, and finally basing for the next Stage 2 advance. As you can see, during Stage 2 advances, prices mainly trend above the key moving averages. During Stage 4 declines, prices mainly trend below the key moving averages.
Stage 1
Get Technical Analysis: Power Tools for Active Investors now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
