There are two major phases of a trade cycle i.e. expansion and contraction. Recurring they follows each other. This is merely due to the fact that a capitalist system is always self regulating and a self correcting type of system due to economic freedom allowed by this system. Hence, factors which generate expansion automatically generate forces which bring an end to it and then lead to contraction. The forces which establish contraction automatically contract against it.

Whenever an expansion or contraction takes place in any sector of economy it spreads to all the other sectors of the economy like an epidemic e.g. if investment expands it results in an increase in National Income, employment etc. This means that e.g. if there is expansion in any sector of the economy, all the other sectors would also move upward in a rhythmic manner and vice versa. Hence all economic activities move together in one direction. Thus, it is not possible to have an expansion in one sector of economy and simultaneously a contraction in another sector of the economy.

The various phases of trade cycle are not of the same duration e.g. a phase of expansion could be ten years or more and a phase of depression could (may) be two years. Similarly, the duration of each trade-cycle differs from the other. The form, duration and amplitude of various trade cycles differ from one another e.g. the shape or type, length or period of time and amplitude of one trade cycle can never be the same as that of another trade cycle.

Generally the average duration of a trade cycle is one of two years at the most and could climb up to ten, twelve or even fifty years. Trade cycles envelop all countries of the world through international trade and do not remain confined to a single country. The depression period of the 1870s and 1930s is a witness of this statement. During this period it was felt throughout the world about the economic problem prevailing at that time.