Understanding Foreign Exchange Market Cycles

An important Tips for any traders' FX strategies understands the market cycles.

So what are market cycles?

Not knowing what market cycle you are in will affect your foreign exchange trading. Knowing the correct major market cycles is important for you and which forex trading system you should be using. As each cycle requires a different approach from your FX trading system.

There are three major market cycles and the ability to adapt to each cycles is an important part of your forex strategy and will improve your profitability.

So you need to understand how to determine the forex market cycles if you want to become a successful trader.

The three major cycles are:
1) Trending
2) Consolidation
3) Breakout

The Three Market Cycles
It does not matter what financial market you are trading, the market can only move in these three cycles.

A common saying amongst forex trade is "The Trend is your friend."

Trending Cycle
Trending is when the market price moves in the same direction consistently in one direction either up or down.

How a forex market trend is inherently defined? A trend can be defined as progressively higher lows and higher highs.

Consolidation Cycle
A Consolidation cycle also known as Non Trending or Ranging market, which looks like a sideways / horizontal line of bars on a chart. Consolidating is when the market is struck between two horizontal support and resistance levels and cannot break these support / resistance levels for at least seven bars.

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.

Breakout Cycle
Now what is breaking out of a Consolidation? After the market has been consolidation for at least 7 bars and then the price sharply breaks out of this ranging market sharply to make a new high or low.