Consider The Financial Market Cycle

Submitted by Marco Palmero on 21 January, 2009 - 10:05

Market Cycles

The world operates on a cyclical engine. The earth year is an annual cycle; humans and animals have a lifetime cycle where they are born, procreate, live a little more and die. Similarly, industrialised economies ride the wave of cycles of expansion, peaking, contraction and trough. Economists say that industries within those industrialised economies undertake their own cycle of birth, growth, maturity and decline. Similarly as stockmarkets rise and fall the financial market cycle prophesy comes true as booms turn into busts which turn into a a renewal of growth after a period of consolidation.

As a trader of the financial markets (stock markets, forex or other commodity based markets) need to keep in their heart that markets move in cyclical patterns. Understanding of this knowledge leads to a sound foundation in market mechanics. Think about this: The cycle is a part of a cycle, which is also part of a cycle. Think of looking at the cycle wave or ups and downs – like the ocean’s waves but in 2D. But upon taking a magnifying glass to examine the wave, you’ll see another collection of peaks and troughs. Then you take a microscope to examine the cycle pattern and you’ll see another pattern of peaks and troughs. The financial market cycle occurs in all time frames. The best example is to watch a live forex chart – and watch the price worm work itself up and down. You will find each complete cycle occurring at different chart timeframes: hourly, daily, weekly, monthly or annually. If you examine the chart in the graphic above you'll see that there are two main peaks and troughs. As the price rises to meet those peaks, they go through other minor cycles of peaks and troughs - cycles within cycles.

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