The trading cycles of forex market revealed. Since you start to learn Forex, you must have recognized that the Forex trading systems are kind of reactive systems. This is because you have to consider a lot of factors in the process of creating trading decision. In this case, Forex traders tend to trade based on the trend. It makes them often attempting to time the market to get profitable trading decision.
Understanding Trading Cycles in the Forex Market
When it comes to see the trend of the Forex market, most profitable Forex traders tend to believe that there is cycle in the market. This cycle is created by human behavior within the market which is resulting repeated trends. The crucial part here is identifying the dissimilar stages in the market. To help you, here are the different stages in the trading cycle.
Stage 1: Range Bound
In the lack of any trend in the Forex market, currency pairs are likely to be range bound. They come and go between predictable everyday highs and lows. The bulls attempt to increase the price, but they instantly meet with resistance. Then, when the price progresses downwards beyond the given range, the equilibrium forces elevate the prices back to the equilibrium.
At this point, as a trader you should create various short term trades. They better sell after the few pips movement considering that the prices can fall back. Moreover, movement of range bound normally finishes in a breakout that is the second stage of the cycle. Here, you should keep it mind that the longer the movement keeps on, the bigger the breakout will be.
Stage 2: Breakout
Second stage is the breakout stage. It is the stage where the Forex market
breaks its inactivity meaning which movements of range bound are converted into clear downward or upward trends in this stage. When it comes to this stage, it is able to take a couple of forms regarding the rate of the primary currency pair. Here are the forms in question.
• Straight Up
Your chart movement can go to straight up direction when there have been a few dramatic changes in the primary currency. This takes place rather fast and the price raised ground. At this point, you should either enter the trade early or they shouldn’t enter the market at all. Here, jumping to the trade later can only mean facing a downside or flat price.
• Higher Peaks and Valleys
The movement might not be one-sided when the breakout is not resulted by an obviously identifiable adjust in fundamentals. At this point, the market is going to experience resistance as it raise. In each point, it will achieve a higher price. Then, each channel will be higher than the preceding on as well. Therefore, the price may fall in relative to intermediate points.
Stage 3: Decline
As you can expect from its name, the third stage is when the prices hit the highest point and then begin to return to the previous levels. This stage might also have some different scenarios regarding the drive of the market. There are two possible scenarios: nosedive and falling troughs and peaks. At this point, the moving average drops and consequently this stage carries itself.
Stage 4: Uncertainty
The last stage will be the uncertainty. After all the stages completed, the market will face uncertainty. In this case, the cycle must start all over again. But, some people might be able to estimate the action future course properly. This stage is signified by given volatility. Since any type of prediction is quite difficult, you need to learn Forex forecasting further for the better.