Lets discuss market cycles now. The four major market cycles are: 1) Trending, 2) Consolidating, 3) Breaking out of a consolidation and 4) Corrective.
Trending is when the market starts to move consistently in one direction either up or down. An uptrend means each higher high is higher than the previous high and each lower low is also higher from the previous low. Similarly for the down trend!
A Consolidation market also known as Non Trending market will look like a sideways horizontal line on a chart. Consolidating is when the market is struck between two horizontal support and resistance levels. You can use moving averages or other technical indicators to determine whether the market is consolidation or trending. In case of a consolidating market, the moving average line will almost be horizontal.
The last market cycle is the corrective cycle. 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. Hindsight is always perfect but trying to predict the markets can be an elusive and impossible endeavor. Right side of the chart is always an unknown quantity for the trader until it reveals itself.
Remember spring, summer, autumn and winter, the four seasons of a year. The markets have four cycles just as there are four seasons in a year. You need to learn what the different market cycles are in addition to having a trading system. That means you should develop the skill of correctly identifying the different market cycles at the right time.
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.
Trending is when the market starts to move consistently in one direction either up or down. An uptrend means each higher high is higher than the previous high and each lower low is also higher from the previous low. Similarly for the down trend!
A Consolidation market also known as Non Trending market will look like a sideways horizontal line on a chart. Consolidating is when the market is struck between two horizontal support and resistance levels. You can use moving averages or other technical indicators to determine whether the market is consolidation or trending. In case of a consolidating market, the moving average line will almost be horizontal.
The last market cycle is the corrective cycle. 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. Hindsight is always perfect but trying to predict the markets can be an elusive and impossible endeavor. Right side of the chart is always an unknown quantity for the trader until it reveals itself.
Remember spring, summer, autumn and winter, the four seasons of a year. The markets have four cycles just as there are four seasons in a year. You need to learn what the different market cycles are in addition to having a trading system. That means you should develop the skill of correctly identifying the different market cycles at the right time.
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.