In the first there is gloom and doom everywhere. Financial reports are negative and people are sure that stocks markets will close down. No one wants to talk stocks. Slowly the economic activity begins to improve but people still believe it is temporary and worst is still to come. Farsighted and Shrewd players start getting in. Slowly markets pick up speed.
In the second phase economy is growing. People now think stocks are less risky than they were when markets were down and start getting in. Good news keeps coming and earnings keeping increasing. This is the phase when a technical trader gets in as he is now sure the Major trend is up.
In the last phase everyone is buying stocks. Economy is in overdrive and people buy as if there is no tomorrow. Your Driver recommends you stocks and every stock is going up- doesn’t matter if the company doesn’t exists. DSQs and Pentamedias start hitting upper circuits. No one cares what the company does. Volumes reach their peak and more and more stocks make new highs. Smart money starts to get out here. First-time investors rush into the markets having heard stories of profits made overnight.
This is when the peak comes. Suddenly investors are trapped. There are no buyers at higher levels. Few start selling. A correction begins.