Grasp the concept of cyclical ebb and flow in the forex market and be on the right side of the wave every time…
Apologies to the Bard for the tacky image, but I think you get the idea and anyway I just couldn’t resist ?
There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures.
Shakespeare, Julius Caesar Act 4, scene 3, 218–224
The forex market really does ebb and flow just like a system of great oceanic tides. It is a 24 hour market, six days per week, virtually every week of every year.
Forex market trading commences for the week in Auckland, New Zealand at around 8 AM Monday their time and closes in New York at around 4 PM EST on Friday.
And just as we discuss elsewhere on this site the concept of lower timeframe candlesticks nesting inside higher level candlesticks, and lower timeframe charts inside higher timeframe charts, so too the fluctuations of the forex market times over days, weeks, months, years and even decades can be seen to move in cycles.
Of course we can’t accurately predict the exact timing, extent and duration of these cyclical moves. But the fact that it is an inexact art should not stop us from studying it. Having a general idea of how the market breathes in and out allows the conscious trader to stand aside at times of lower probability and pursue opportunities when the probability is higher.
Classical Forex Sine Wave
Classical sine wave activity: note the different cycles within larger cycles, just like currency market hours within days, within weeks, within months, within years…
As the progression of forex market opening times and closes proceeds around the globe we get fluctuations in volatility due to liquidity blocks entering and leaving the market.
It can be thought of as resembling a sine wave.
Each day as trading progresses news and other announcements may cause another series of cyclical price spikes and retracements intraday, independent of market opens and closes.
Understanding how and when these moves peak and ebb will both enhance your opportunities for quick profits and help you avoid being whipsawed by short-term volatility.
These fluctuations, especially those caused by important news announcements, not only affect trading at the time but also can have bearing on the results of any backtesting…
For example, you may look at a new strategy that has great results in backtesting and conclude that it is worth trading. You then proceed to trade it, taking note of breaking news announcements and avoiding trades at those times. But have you done the right thing? What if the backtesting was conducted without any regard to news announcements during the period tested? In that case it’s like you bought one system but are trading another!
This talk of news announcements and their impact on trading brings us to a couple of tools that every trader should employ in their day to day trading, namely a news source and economic calendar. Click on the following link to explore this in more detail:
Forex Market News
As mentioned above, forex time cycles, and the cycles themselves nest within one another. The two most useful views of this are the Forex Market Year and the Forex Market Day. Click the following links for more details:
Forex Market Year
Forex Market Day