Imagine a rollercoaster ride – that’s what a business cycle is like. It has ups (bull markets) and downs (bear market) that can throw you off course if you don’t understand it.

Learn how to recognize the different stages of a market cycle to avoid being caught off guard and to reach your financial goals.

A cycle Understand Investment Cycles when a stock, sector or the entire market is priced below its intrinsic value. At this point, there are more net sellers than buyers, so prices fall until the valuation level reflects the underlying fundamentals.

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The upward phase of a cycle typically has many positive factors. For example, a company’s growth strategy may be successful, which entices investors to buy shares at the top of the market. During this period, it’s easy to get carried away and make decisions based on emotions, such as greed, which can lead you to invest more than you have to and end up buying at the peak of a bubble.

The downward phase of a cycle is often sparked by a less hospitable economic environment or a black swan event that creates widespread panic. Once sentiment reaches a fever pitch, the selling continues to feed on itself. Eventually, the price falls far enough that more people are selling than buying and the value of a given investment is below its original purchase cost.