Cycles in the Forex market

Cycles in the Forex market

Cycles in the Forex market

Traders have long noticed that certain patterns can be observed on the chart. You can use them for your own purposes, and make a profit from it. All price movements can be divided into certain cycles of the Forex market and using this pattern, predict fluctuations.

There are several cycles in total:

Seasonal. As you can already guess from the name, these periods are determined based on the seasons. If you take a Forex chart, for example, with a weekly timeframe and divide it into separate sections based on the seasons, you can make sure that the price can behave differently at different times of the year. This is due to the activity of investors. For example, in summer, fluctuations can often be much weaker than, for example, in spring or autumn. The fall in Forex volatility in this case is explained by the fact that summer is a holiday period.
Monthly cycles of the Forex market are associated with the fact that companies conduct their activities and buy or, conversely, sell a certain currency.
Weekly cycles of the Forex market are a fairly short period of time within a week. The market can be quiet, for example, on Monday (often on this day there are no important statistics). Then, by the middle of the week, volatility may increase. On Friday, by the end of the day, volatility may fall.
Also, some traders distinguish wave cycles on Forex. In this case, the determination is made not by time (waves can be formed over different periods), but by the completion of the model construction.
There are also the daily cycles in Forex. Here the division can be carried out in trading sessions. The same currency pair may behave differently in the Asian and European sessions, for example.

It is worth noting that such a concept as Forex cycles is not used for making trading decisions. It can be used as an additional filter that can tell you what time it is best to trade.
How do I work with loops?

The main mistake of most traders is that they assume that the price will follow the same pattern after the reversal pattern appears on the chart. However, this cannot be confirmed.

The fact is that market movements are not completely symmetrical. Yes, if we consider cycles in mathematics, they will be symmetric. But in the market, everything looks much more complicated.

And another important point is that the formation of Hays and lows can take place sooner or later in different cycles. This means that if you can identify even two identical cycles, it is not a fact that the next time the situation will be repeated with accuracy.

the cycles of the Forex market

There is such a thing as cycle offset. We will analyze it in more detail. There are two features that affect bias. The first is the fact that the growth in the market is slower than the fall. Accordingly, the cycle shift is more often observed to the right in the long term.

And another important point. The model of cycles in trading on long-term and short-term intervals will shift towards the trend over a long time period.

In order to determine the offset, you need to track all the maxima that appear within a single cycle. Therefore, you need to build a histogram. Then you can determine the direction of the offset.

You can apply this theory in practice by building so-called Windows. They can account for up to 20 percent of the entire cycle. You can use these Windows to identify areas where a u-turn can occur. In other words, you will not know for sure that the trend line will change at a particular point on the chart. However, you will get information that a trend change will occur in the specified period.

This information can be really useful. As we noted above, cycles are not used as accurate Forex indicators. They are used as filters. If a trend reversal is expected to occur in the window, you can place a stop order closer or stop trading altogether until the price changes direction.

By the way, there is such a thing as a Forex cycle indicator. And there are quite a lot of such algorithms today. Most of them are plotted in a separate window based on the oscillator type in the form of a curve or curves moving in a given range.

There is also a Forex cycle indicator in fundamental analysis. Such algorithms may include, for example, the index of business activity in different countries. They reflect the state of the economy in certain time periods. Moreover, the advantage of such indicators is that they are ahead of the curve.

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