Typical 10 Phases of Stock Market Disturbance

Within bear or bull market there are always fluctuations in stocks prices. It can be said about indexes, ETFs, and most other investing instruments. As example, let's consider an equilibrium market state that is based on a realistic evaluation. Assume it is a starting point. Then at some moment a good news released with the expectation that is above a realistic evaluation. The first reaction would be a price up-move (stage 1).



As prices are tend to rise, many would follow a simple strategy to join a growth movement that additionally enforced by greed (stage 2). Since there are always some participants in the market that might got this news with a delay or are too big to make the decision and perform transactions fast, the curve price might continue rising but with a slight less slope (stage 3). Normally, news can be accompanied by other overly optimistic opinions. Also there is always a room for some errors and miscalculations. These factors can be materialized in a short spike of prices (stage 4).

At some point, when a buying power exhausted and there are no other factors to sustain the growth, a reversal happens. All fast trading systems and dynamic participants of the market including short-sellers push the market down rapidly (stage 5). When the correction technically becomes more obvious, many start selling; the movement becomes stronger additionally enforced by fear and leads prices below the equilibrium line (stage 6).

Since fear is more strong drive than greed, normally the value of downtrend gradient is bigger than uptrend one. Two phases that are similar to ones existing in the uptrend curve part, delay (7) and miscalculation (8), follow until a bounce back (9). The after-bounce curve part can have a decaying-fluctuation pattern (stage 10). This pattern finally approaches the market evaluation to the equilibrium line.


Practically, very often, all described above consequent 10 phases might not be observed clearly due to several reasons. One of them is a fact that a single isolated news happens very seldom. Another typical reason is that all factors that drive the market might not be available in the form of publicly available information all the time.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction prohibited without permission.