Forex markets are particularly prone to cyclical patterns. The ancient Greeks claimed that the circle revealed wholeness because everything was cyclical. Financial markets are also cyclical because they simply reflect changes in the way people evaluate things. Therefore, we can use what we know about circles and phases to better predict market cycles.
So, if you want to become a successful forex trader, you need to know about the cycles of the markets. Learn to identify them, and your long-term forex trading will be more profitable. Some cycles can take decades to complete even their course. Others come around in short forms, so some traders can engage in day trading. Observers note that all markets follow the same circular shapes. It is one of the basic principles of technical analysis of the forex market. Technical analysis, simply put, reads circles in past forms and plan them forward.
What do we need to know about circles and cycles? In this article we explained how Cyclical pattern works in Forex trading.
Understanding Market Behavior in Terms of Phases and Circles
As the markets were round and round, close observers observed four distinct positions for each cycle. As currencies circulate faster than stocks, it will be easier for visitors to identify these positions in the forex market. These phases, or phases, are similar to the phases of the moon. For the purposes of this articles, they are:
- New Moon
- Waxing
- Full Moon
- Waning
1. New Moon
The phase we call the “new moon” will be dark and invisible to us because that planetary body was hidden in the shadow of the earth. This phase marks the beginning of another circle of that body around the earth. In a similar fashion, the market cycle begins where ratings are dark. However, most traders are reluctant to invest in this space circle. Because many still beat the losing trend. At this point the market will be negative, and there may be references to the current recession.
However, this is the point at which market insiders and savvy traders spring into action, buying up currencies they see as undervalued.
2. Waxing
The next phase of this process begins when people begin to realize that the market is moving upwards again, and they begin to look for opportunities to enter. In a hurry, people rush to the market and try to move upwards. Some people see good opportunities, but these opportunities quickly diminish. This phase of the circular pace of the market is described by most viewers as positive. There will be a lot of confidence in the market, and many will rush to get down to the market now.
Anxious traders circle the markets, and people jump in out of fear of losing out.
3. Full Moon
Eventually, they will be able to risk all the money they can in the market. At this point, there is a subtle balance between sellers and buyers. This is the “full moon” phase of this circular shape. This is the peak market. It is as full as it can get.
Then the upward-moving plateaus exit, and price action continues its daily fluctuations. Late arrivals hold the full moon market for a while, while the market maintains a weak horizontal trend. Hopefully the investor sentiment at this point in the circle or cycle will be optimistic. However, a few analysts and traders will start talking about the coming recession. In general, people ignore them.
4. Waning
The circle will eventually come back and there will be more sellers than buyers in the market. At this point in the circle, prices will start to fall. As with things, the market will often fall faster than high. There is a distorted psychology here as many traders refuse to sell with false hope and fear of loss.
This is especially true for traders who are late for the cycle. Nevertheless, the market is quickly falling on its own. Often, the market does not notice the decline. It is only after the market collapses that the recession is talked about again. At that point, it will be too late. When we talk about long cycles the recession has completely caught up and we are back around the dark phase.
Conclusion
So whether you are a short term or long term forex trader, the market methods are similar. This is because short-term cycles run longer. Graciously identify the stages of the market and learn to ride, and as a trader you will find greater success. Elliott waves are one of the most popular technical indicators for identifying and monitoring market patterns. Most of the other indicators will monitor cycles or trends. Simply put, the technical analysis method you prefer will usually identify at some point in the market cycle.
