What Are the 4 Market Behaviors?

Financial markets exhibit recurring patterns, known as market behaviors, which reflect the collective actions and psychology of participants. These behaviors operate cyclically, influencing the price movements of various assets, including stocks, bonds, and commodities. Understanding these phases provides insight into broader market dynamics and how supply and demand shape asset valuations.

Accumulation

The accumulation phase typically marks the period after a significant price decline, where informed investors, often large institutions, begin quietly purchasing assets. During this phase, market sentiment is usually bearish or indifferent, and most participants remain skeptical of any potential rally. Price action tends to be sideways, staying within a defined range. Volume is generally subdued, as institutional buyers gradually acquire large positions without conspicuously driving up the price. This quiet buying supports the asset’s price, preventing further significant declines and setting the stage for future appreciation.

Markup

Following accumulation, the markup phase begins as prices start to rise consistently, signaling a shift from uncertainty to optimism. This phase is characterized by increasing interest from a broader range of investors, leading to higher trading volumes. Prices exhibit clear upward trends, often marked by higher highs and higher lows. Positive news and growing momentum typically fuel this period, attracting additional buyers and strengthening the uptrend. The market gains momentum as more investors recognize value.

Distribution

The distribution phase occurs after a prolonged price increase, indicating that informed investors, who bought during accumulation, are now systematically selling their holdings. This period often sees prices flatten and trade sideways within a broad range, despite continued high trading volume. This increased volume, without a corresponding increase in price, suggests that early buyers are exiting their positions. Market sentiment begins to shift from bullishness to a more neutral or cautious outlook, as selling pressure gradually outweighs buying interest. Periods of significant selling can occur without a persistent decline.

Markdown

The markdown phase, also known as a downtrend, follows distribution, characterized by consistently falling prices. During this stage, investor confidence decreases, and negative sentiment often leads to widespread selling. Trading volumes can increase significantly as panic selling ensues. Prices typically form lower highs and lower lows, as sellers dominate the market. This phase continues until selling pressure is largely exhausted and prices reach a level where new accumulation can begin, restarting the market cycle.