A stock, Forex or futures chart only has 2 dimensions. Most traders and investors focus only only one: price. But along the bottom of every chart is another dimension: TIME. That axis is fully 50% of any chart’s equation and it measures market cycles.
Stock market cycles (as well as those of Forex, commodities, futures or any other market) are absolutely critical for those trading the markets because they provide the critical element of TIMING when to enter a trade.
A floor trader at the CME once told me that retailers (his word for amateur traders) are usually right, but at the wrong time.
W.D. Gann proposed that time was more important than price.
And yet as I talk to traders around the world, very few of them know anything about market cycles.
One of the most common laments I hear from amateur traders is that they took a position, quickly got stopped out, and then the market turned right around and went soaring in the direction of their original trade!
This happens because they don’t know how to TIME their trade.
When most people think of cycles, they think of up and down oscillations. And that is certainly one type of cycle. Even in a trend, the market moves up and down during its larger directional move.
However there are other types of cycles as well:
- Contraction/expansion (cycles in volatility).
- Order/chaos (cycles between high probability setups and low probability setups).
- Fast/slow (cycles in how fast the market moves).
- Coupling/uncoupling of sectors, industries and various market pairings.
- Seasonal and calendar cycles that tend to occur around the same time of year.
… and there are probably many more.
Learning about these various types of cycles can give you a tremendous edge in trading because most traders don’t give them any attention. It can be your advantage that may turn you from an average day trader, swing trader or investor, into a profitable one.
The topic of cycles is a big one, so I decided to simply begin with this introductory article and then let you decide where we go from here.
For more from Barry, visit Top Dog Trading.