A Simple and Effective Way to Spot and Trade Market Cycles

Chris Pulver is a full-time trader and Senior Currency Strategist at Market Traders Institute. To know more about the systems, tricks, and strategies that Chris uses to target profitable trades, you can sign up for his free weekly newsletter here.

The market – as most things in our lives – moves in phases. It outperforms the recent lows or underperforms the recent highs or just sits in a broad range over a period of time. And these phases are called market cycles.

Traders often try to understand a market cycle to profit from it. The problem? Many traders fail to recognize when a cycle will start or end or know what course of action could help increase their profit potential. So, let us look at a simple and effective way how you could try to take advantage of these cycles.

Decision vs Indecision Cycles

Markets feature both decision and indecision cycles. Each of these have different characteristics.

A decision cycle is when we tend to see…

  • Trends – an uptrend or downtrend
  • Higher volatility

Conversely, an indecision cycle is when we tend to see…

  • Ranges and consolidation
  • Lower volatility

Here’s an example to help you understand this concept better.

Let’s say we’re trading the GBP/CHF currency pair. The chart below shows that the pair has had many uptrends and downtrends over the last few years.

Decision Cycle for GBP/CHF

 

So, any huge drop or rise we see here is considered as a decision cycle.

Have a look at the arrows in the chart. Starting with March 2018, the GBP/CHF witnessed an uptrend and then witnessed a downtrend back in May 2018 – both of these trends are decision cycles.

And here’s where we would see the asset price going up or down in a certain direction along with higher volatility.

On the other hand, below is an example of an indecision cycle.

Indecision Cycles for GBP/CHF

Any consolidation or range-bound activity we see here is an indecision cycle.

Right after the decision cycles the GBP/CHF saw in March-May, it went on to trade on a flat note and within a range during June 2018. This phase is an indecision cycle and here’s where we tend to see lower volatility.

Now that we know what these cycles are, how can we trade them?

Trading Market Cycles

The answer is simple – whenever you find an indecision cycle, level it up in a range and you will know where the highs and lows in a range are. And these can serve as your entry or exit levels.

So, say if the GBP/CHF pair is moving in a range of 1.16 to 1.22, you can look for an entry at 1.16 levels and sell it for a potential profit at the highest range in that cycle i.e. at 1.22 levels.

Apart from the above, you can also use an indecision cycle to know when there’s a build-up for a potential decision cycle for a particular currency pair, stock, cryptos, or commodities.

All you have to do is to watch out if the price is moving out of the indecision cycle range. If that’s the case, it indicates there’s a trend formation shaping up in the direction the price is moving.

So, if we have to apply this to the example we saw above, any large movement in GBP/CHF below 1.16 or above 1.22 will mean there’s a sign of a decision cycle forming up (the chart above shows us how there was an uptrend and a decision cycle formation after the price crossed 1.22).

You can try reading these cycles on various stocks and currency pairs to get a better understanding of how cycles for those assets are forming and the pockets of opportunities they provide to profit from.

Chris Pulver, Senior Currency Strategist at Market Traders Institute, has also recorded a short video on this concept a while back, which you can Watch Here.

If you are looking for such easy-to-implement, yet potentially profitable, strategies, you should check out his FREE Perfect Storm Pro master class, video and ebook. It’s where Chris shows you how he has leveraged technology to discover over five-figure results year-over-year.*

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