What are Market Cycles? Never heard about the market cycles! Not knowing the market cycle can affect your trading. Knowing the major market cycles is important for you and your trading system. Each market cycle requires a different approach from your trading system. There are four major market cycles. Adapting to market cycles can improve your profitability.

Lets discuss these market cycles now. The four major market cycles are: 1) Trending, 2) Consolidating, 3) Breaking out of a consolidation and 4) Corrective.

Remember the saying, Trend is your friend. Trending is when the market starts to move consistently in one direction either up or down. How a trend is inherently defined? A trend can be defined as progressively higher lows and higher highs. If price movement consisted of a straight line either up or down, identifying a trend would obviously be too simple. In reality, currency prices move around incessantly, often denying the technical analyst an easy trend read. There are primarily three modes of price movement that can be readily identified. They are uptrend mode, downtrend mode, and non -trending (sideways) or consolidation mode.

Consolidating is when the market is struck between two horizontal support and resistance levels. On a chart, it will look like a sideways horizontal line.

After the market has been consolidation for at least 20 bars Breaking out of a Consolidation is when there is a sharp increase or decrease in the price.

Corrective is a short sharp reverse in prices during a longer market trend. Many traders also use Elliott Wave Theory to determine waves which are also an indication of market cycles In addition to these four market cycles.

However, using Elliott Waves is somewhat advanced for most traders. There are five Elliott waves and each one has its own relevance in determining the trading strategy. You need to have a thorough understanding and ability to correctly determine which wave the market is in at that point.

For example suppose the market is only consolidation and you incorrectly determine that the market has entered a trend. Incorrectly identifying the market with either the four market cycles or by using the Elliot Waves can be a costly mistake.

You might enter a trend trade and get immediately stopped out. Your best plan of action should be constant observation. Market experience is the best teacher and only overtime you will be able to correctly figure out the market cycle.

Right side of the chart is always an unknown quantity for the trader until it reveals itself. Hindsight is always perfect but trying to predict the markets can be an elusive and impossible endeavor.

Just as there are four seasons in a year, the markets have four cycles. So in addition to having a trading system, you need to learn what the different market cycles are. That means you should develop the skill of correctly identifying the different market cycles at the right time.

Effectively identifying the market cycles is a skill that all successful traders have mastered. You need to learn how to adopt your approach to those cycles to remain profitable. For example in a choppy, sideways bracketed market, you need to adopt your system and rules so that you do not get whip sawed and stopped out a lot.

Mr. Ahmad Hassam is a Harvard University Graduate. Learn These trading/2009/10/candlestick-patterns/">Candlestick Patterns. Try These 1500 Pips A Day trading/2009/09/strignanos-forex-signals/">Forex Signals from heaven!

categories: forex,options,futures,trading,investing,finance,business,wealth,real estate,home business,work at home,credit,mutual funds,stocks

“Wait! We Need Your Opinion About This Forex Article…That’s What Makes This Site Unique- Your Opinions…” What Do You Think? Rate & Review This Forex Article In The Space Provided Below. Thank You!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Related Posts:
**Stop Loss Rules Explained  -Dont pick an arbitrary place to put your stop loss. Position your stop loss in relation to the ...

**Position Trading Explained (Part I)  -Position trading is all about taking a directional market position and holding it as long as th...

**Position Trading Explained (Part II)  -As a currency trader, you may be confident that the Euro is indicating overall strength while U...

**Breakout Fading Explained (Part IV)  -In order to employ the breakout fading strategy, you should be able to identify likely false br...

**MACD Divergence Explained  -Understanding and interpreting a MACD divergence can be very helpful in your trading. You may a...