Stock Life Cycle – How to know the status of your stock in its life cycle?

Stock Life Cycle – How to know the status of your stock in its life cycle?

Stock Life Cycle: Everything in nature goes through a cycle, whether it is a living being or a season. Just as living beings go through different phases such as birth, growth, maturity and finally death or rebirth. The weather also follows a cycle and there is not only one type of weather throughout the year. The summer season is an essential part of the weather cycle and will be with you for four to five months whether you like it or not.

Similarly the stock market also follows the cycle. It is certain that after the recession, there will definitely be a boom phase, but it is very difficult to say what will be its time frame. If you want to enjoy the fruits in favorable conditions, then it is very necessary to adapt to the harsh conditions. The most important topic here is to maintain Saiyam.

Different rounds of stock life cycle

  • Accumulation Phase

This phase is mostly seen in the early stages of the company or after a prolonged decline of an established company. After going through a bad phase, the company tries to rebuild itself. This period may range from a few months to several years. The shares are mostly lying with the owners, who do not intend to sell until they make huge profits.

Stock Life Cycle
Stock Life Cycle

During this period the stock moves in a range and the upper part of this range acts as a resistance. As soon as it breaks this circle, it will join a new round.

  • Development Stage

As the company’s business improves, it enters the growth phase by breaking its long-held range with higher volumes. Regular improvement in business and entry of new investors gives rise to the stock. In this phase the stock works only above its 200 day moving average and it is better to stay in this stock till it breaks it.

  • Delivery Stage

Smarter share holders are well aware that good times cannot last forever and by this stage the shares are quite over-valued. Between good economic news and big earnings, shares are sold to small shareholders. During this, the share price keeps rotating within a range and this peak can be spread over a few months to several years. As soon as the 200-day moving average is broken, an early warning is received that now the bullishness is soon going to turn into a bearish one.

  • Fall Stage

When the stock enters the downtrend phase, there is no obvious reason initially, but slowly after the bad news comes, the share price starts sliding further down. In between, the stock starts a false upward move so that the share holders feel that the decline of the stock has stopped.

At this stage it is very important to be cautious and as soon as the share price approaches the 200 day moving average, it gives us good short opportunities.

Stock Life Cycle Example

Let us understand the life cycle of a share with a practical example.

This is the monthly chart of Reliance Capital. If we look closely at this chart, we can see a good accumulation phase between the year 2000-2005. After that the stock enters the growth phase.

After the year 2008, it makes a peak and enters the decline phase and within 1 year it is again standing where it started.

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Once again after the year 2011, this stock enters the accumulation phase. The stock is currently facing resistance in the upper part of this phase. If detected with a good volume, it will be able to enter the growth phase once again.

Stock Life Cycle Conclusion

Before investing in any company, investors find a solid reason. But there is a drawback in it that while searching for that reason, the share price has increased by 300-40 percent.

The right time to take a stock is when it is surrounded by bad news and no one is interested in taking the share, on the other hand when everything is looking good and everyone is showing interest in buying the share, It is wise to exit the stock at that time.

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