We use the term Market Cycle when we refer to a forex market trend that will repeat itself after some time passes. Market cycles will use data that was seen in the past in order to predict what will happen in the future. If we can understand market cycles in forex we can forecast lows and highs much more precisely. This will allow us to change the investment strategy we use in order to maximize profits.
How to Understand Forex Market Cycles
Before we go any further we need to understand the basics of forex market cycle use. Let us think about a situation where we see prices rise and fall after specific periods of time. In a graphical demonstration the trend will look like a wave. Every single price rise will form high points that we call crests. Falls will form low points that we call troughs. To put it simple, a wave cycle is made out of one trough and one crest.
The problem that it is quite hard to deconstruct forex waves as different factors govern it. When looking at forex, whenever waves repeat themselves we are in front of cycles. Let us consider EUR/USD for 1 year as time frame. The prices will rise for 3 months. This translates in a forex wave the will just show rise during that time frame. Now let us say that for the following 3 months we see the pair drip gradually in value, thus showing fall in our graph. Now if from July we see prices rising we will have the wave rising. Based on this we gain a first impression that a market cycle for this trade lasts for around 90 days. When we have such knowledge we can change our strategy on the basics left by that cycle period.
Elliott Wave Principle is methodology and form of technical analysis which traders use and watch Forex Market Cycles.
Here we can see how we can use Elliott Wave Principle in trading:
Forex Market Cycle Types
There are 2 main types of forex market cycles.
Short Term Market Cycles – Such cycles will be based on the daily fluctuations that we notice in price values. Those that use daily trading will find them to be extremely useful.
Medium Term Market Cycles – Such cycles will last anywhere from few days to many weeks. They are highly important for a swing trader.
Long Term market Cycles – The cycles can have values that will last from just a few weeks to many years. All depends on the cyclic trend analyzed.
A forex market cycle is complicated and in most situations there is a need to have an expert analyze and interpret them. The good news is that by having a basic knowledge about these cycles you can forecast trends to a certain degree.
Here we can see how we can apply forex market cycles in real trading: