Market Cycles and Entry/Exit Points
Trading is a game of informed risk. The more you understand the market, the easier it gets to avoid the risks that come with the volatility of the market. Without signals to guide your trading, new traders may find it extremely difficult to make profits.
Fortunately, there are numerous strategies that you could use to ensure you don’t play a losing game. In this guide, we’ll go over two major interrelated concepts that can help you get started in the market: market cycles and entry/exit points.
What are Market Cycles and Entry/Exit Points?
Before getting to how we can use these two concepts, let us first understand what exactly they are:
Market cycles are patterns that exist in markets, and which affect the prices of assets. Although they were first observed in traditional stock markets, their four characteristic phases are present in all kinds of markets, including crypto markets:
● the slow accumulation
● the quick run-up
● the plateau in price
● the subsequent drop in price
Entry/Exit points are distinct but interrelated: an entry point is a price at which an investor buys into a cryptocurrency or other commodity. An exit point is a price at which an investor sells out of an investment.
But how do you know where they are? There are several strategies used to find the best entry and exit points but we will focus more on how to determine them with the market cycle.
What is the Relationship Between Market Cycles and Entry/Exit Points?
All the mathematical indicators used to determine the entry and exit points are based on operations related to what is known as a bell curve. Think of it as the unique ‘shape’ that forms the phases of the market cycle: instead of constantly going higher, markets have highs and lows that repeat themselves. Almost like perfect waves.
How to Use Market Cycle Phases to Determine Entry/Exit Points
To understand how the two concepts work, we will look at how each of the four phases influences the entry and exit points and how to use this knowledge to your advantage:
The Slow Accumulation Phase
This is the beginning of a new market cycle where the market sentiment moves from negative to neutral. New investors also buy in at this point. It starts at the end of a market low point and is also referred to as the ‘buying dip’, where prices are also at their lowest. It is a popular entry point for smart investors.
At this point, we are at the bottom left side of the bell curve.
The Quick Run-Up Phase
Also known as the bull market, the run-up phase is characterized by rapid increases in value. The direction of the market becomes clear and the sentiment switches to full-on optimistic. It is at this point that the majority of investors, or the early majority, buy into the investment, making it the next best entry point.
However, towards the end of this phase, the market becomes oversaturated. Many investors want to take profits, so market valuations seem excessively high. You could even say that at this point, prices are overvalued. Therefore, the entry of the late majority is a popular exit point for smart investors and industry insiders.
In phase two, we are running along the side of the bell curve, quickly heading to the top.
The Plateau or Distribution Phase
In the plateau phase, the price remains relatively constant. The number of buyers drops, and the market is dominated by sellers. The excitement and optimism of the first two phases are replaced with mixed sentiment.
At this peak, there are a lot of mistakes that can be made. Several investors still hope for increased gains, even though the market trends have already started reversing. If an investor had not already exited, this point would be the best to do so to avoid losses.
Here, we are at the top of the bell curve.
The RunDown Phase
In the final phase, we begin the descent down the other side of the bell curve.
This may be an emotional time for most investors, but as we said earlier, the cycle repeats itself. It is best to avoid being in the market at this point. It is neither a good entry nor exit point. You may be tempted to leave your investments and wait for the next accumulation phase, but this significantly reduces your ROI.
Timing the Market vs Time in the Market
Timing the market is an attempt to outsmart it, often without fully understanding it. Therefore, with so many people misunderstanding the market cycles of both traditional and crypto markets, there are bound to be problems.
However, studying market cycles and understanding the best entry and exit points will base your strategy on the time in the market. Doing this is the beginning of smart investment. The time you are in the market the better you will be at identifying patterns and these phases described above.
The best part is that you do not have to do this on your own, CurPay is a leading cryptocurrency trading platform that uses Artificial Intelligence to help you keep track of market cycles. It is compatible with both Coinbase and Kraken, making it easy to integrate as well. Also, CurPay offers signals for buys/sells in cryptocurrency driven by AI. CurPay uses multiple trading indicators to make better entry/exit decisions on an asset.
With the knowledge in this guide and CurPay by your side, what is stopping you from trying it out?
With state-of-the-art AI Volatility Protection and everything else you need to customize the perfect trading strategy, CurPay is like having a financial advisor in your corner 24/7. So, If you are ready to start trading crypto, then be sure to check out CurPay today.