They are various cycles that occur in the forex market, they mostly occur at different times with great fluctuations. These cycles exist in the currency market environment, created by innovations, product line or regulatory environment that allows some exhibited price patterns and profit to perform more than others. Forex cycles are good at measuring turning points in forex markets but do not measure the direction of the turning point.
They are different phases associated with a market cycle. All cycles experience same pattern either from a beginning phase where the market is born to the decline stage were the cycle ends and markets the beginning of a new cycle. One major problem that forex traders experience is that they don’t know that a market is cyclical in nature or fail to expect the end of a market phase. Below are the 4 phases of a forex market cycle.
The ACCUMULATION PHASE
This phase is usually seen when the worst is over. Here, beginners and experience currency traders starts buying currencies in the sense that no risk will be encountered at this moment. At this point, assessments are made and the market sentiment is still hopeless. In this phase, prices have flattened and for every currency trader that sells currency, there is someone that is willing to buy at a healthy discount and the market sentiments turns from negative to natural.
THE MAKE UP PHASE
At this stage, the market stabilizes and starts moving up words. Here, the forex market starts encountering higher lows, higher heights and its direction and sentiments changes, this get the attention of the traders. As this phase undergoes maturity, many investors start to experience greed and the fear of being left out in the market. As this comes to an end, the market volume increases and logic and analytical thinking is over thrown by greed in the sense that prices fall and traders sees it as an opportunity to buy more currency.
THE DISTRIBUTION PHASE
This is the third phase of the market cycle and here, sellers begin to dominate the market. The market turns into a mixed sentiment as it reaches its peak. Everything moves excellently as this rate. Currency prices become high and stand still for a relatively long time as sellers in the market make their turn. When this phase approaches its end, the market experiences a reverse in direction. Patterns like double and triple tops are examples of movements the forex market undergoes during the distribution phase cycle.
THE MADE DOWN PHASE
This phase is the most painful phase for those forex traders still holding relevant positions. Here, investments begin to fall below what they paid for and many traders who bought currencies at the distribution and early mark down phase starts living the market. This stage is usually a buying stage for early investors and a sign that the downing of the market is fast approaching. These new investors buy the depreciated investments during the next accumulation phase.
In conclusion, cycles in the forex market exist and traders should be aware of this fact. The accumulation stage is the best time to buy currencies because the values stop falling while the end of the makeup stage is the best time to sell currencies because values start climbing fast.
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