Forex Trend Cycle: Stages and Features
For successful trading there is not enough knowledge about only two buttons “BUY” and “SELL”. Continuous improvement of your financial literacy should become a law for a trader. There are some notions in the currency market that a trader needs to know about. Among them is trend cycle. That’s what we’ll talk about in today’s article.
Just look at the chart of any currency pair to see the peculiarities of the price movement. Quotes can’t keep growing or falling. Any strong movement will end sooner or later, as the price is influenced by a large number of different factors. How important they are for a particular trading instrument will determine the duration of the trend. Therefore, we can observe both short- and medium- and even long-term trends in the market.
The duration of a trend’s “life” (cycle) is extremely important in forex trading. Understanding this process allows the trader to determine the optimal points for opening trading positions and close orders in time.
Any trend cycle can be divided into 4 stages or stages:
- Birth of the trend movement
- Trend development
- To reach the peak
Trend origin is mostly preceded by price consolidation. Then there is a breakthrough of an important level, which is accompanied by an increase in the volume of transactions. Entering the market at this point may result in taking a good profit. However, it also has a high degree of risk. Cautious traders don’t tear off orders at this stage. They’re waiting for confirmation of the market trend formation.
After a break-down of a significant level, the price starts to rise rapidly, which indicates the development of the trend. It is this period that many traders use to enter the market. Those of them who prefer conservative trading style open orders after correction.
Solid price movement ends with a level that it can no longer overcome. It’s what’s called the peak of the trend. At this time, there are first signs of buyers’ weakness (in an upward trend) or sellers’ weakness (in a downward trend).
In the final stage, the trend begins to “die”. After a long upward movement, the price falls, and after a downward trend, the price starts to rise. This time is the most appropriate time to take profit. Trend cycle completed.
The understanding of this process comes with time after careful monitoring of the price behavior in the market.