Forex Market Cycles

We have 3 types of movements that create cycles in a market, either within a year, a month, a week, a day, or any other timeframe. Cycles are everywhere.

We have the bullish, bearish, and ranging movements. The interesting thing about these movements is if you are not able to spot what market environment we are in, you are probably the joker at the poker table, ready to lose all your money.

When to trade and when not?

Retail traders usually find themselves in the middle of the move and you know what’s scary about the middle? You don’t know if a ranging market is being formed and you could be in for a long rollercoaster ride, hopeful that your capital survives. Hope, is a very dangerous emotion to have when trading because it dictates how you react after you have entered a trade.

As traders, we aim to get in at the bottom and exit at the top, and visa versa. The middle ground is where the indecisive traders play.

Let’s chat about when to trade

I believe it is always best to trade in certainty. You can never be 100% certain of the outcome as a Forex trader, but you need to be certain of your analysis and edge.

Trade when we are either in an uptrend or a downtrend because trading in the middle is never safe. Now, you might be a trader who says “I’m looking to make money not be safe!” and I get that, but you can’t make money without money. Not in the Forex markets you can’t!

The beauty of getting in at the bottom or getting in at the top is even in a ranging market you can still catch a huge percentage of the move and, depending on your trading strategy, your exit points can be extremely clear.

When not to trade?

IN THE MIDDLE!!! IN UNCERTAINTY and definitely when you don’t know what you are doing! Simple.

When you understand cycles, you can understand the points where money is put into the markets and where money is taken out of the market. It helps to understand market flow and exactly how institutions trade.

(Source – TradingView)

 

Let’s talk about the best times to enter, this applies to all Forex pairs, from the example placed above.

Remember when I said the middle is an area of uncertainty? It is! And some call it the grey area. Please understand, I am not saying it is impossible to make returns from the middle, but I am saying that you will have headaches and lots of sleepless nights.

BUYS

Only where you see the green boxes!! I say that because after the 3rd green box you don’t know how the markets will react and you also don’t want to be greedy by setting take profits far away with no proper reasoning.

Another problem is that you may experience a significant drawdown before the market moves in your direction.

It is important to note that, as a trader, the emotions you experience during uncertainty are far greater than the emotions you will encounter when entering at the start of a move.

SELLS

ONLY where the red boxes are!!! Because those can be considered as sufficient pullbacks and there is a minor level. Now you may wonder, “But that last red box looks like it’s in an area of uncertainty and you said don’t trade uncertainty?”

You would be absolutely correct! You shouldn’t no matter how tempted you are. Unless you have a proven edge that works in those circumstances. But be prepared that, most of the time, the market will move against you initially.

In both buy and sell opportunities, you would be required to find some sort of entry candlestick or confirmation of the move you are trying to catch.

So if you are the type of trader that requires a step by step method, here you go:

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Steps:

1. Identify the cycle the market is in

You can do this from the top-down, meaning from the higher timeframes down to the timeframe you are most comfortable placing trades. A cycle is a recognizable pattern in price action.

It is important to note that, institutional traders look at the market in this way too. Buying bottoms and selling tops. Never in the middle.

 

2. Identify when to enter and when to exit

This is way more important than placing the trade itself because if you don’t have a plan or strategy for entries and exits, you will walk right into a war zone…and panic.

Enter upon confirmation candles, whether you use breakout strategy, patterns, or any other strategy! All entries are upon a confirmation ONLY, never before!

Exit, either according to your strategies exit opportunity or according to the daily range of the Forex pair you’re trading.

 

3. Execute the trade

Enter the trade and manage emotions, the position as well as your risk.

 

They say that the markets range 70% of the time and are in a trend 30% of the time. That tells you the kind of patience required!

Let’s practice patience and if we miss the move, always remember that the next trade is always around the corner!

 

Happy trading Traders!

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Emmanuel Maphosa

Emmanuel Maphosa

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