As traders, we should all know that the market is going to continually change. That is just part of the business. Because of this reason we need to use basic market analysis to keep up with these changes. This is what i commonly refer to as market cycles. A market cycle is where we use support and resistance, trend lines, price action and Fibonacci lines to work out how the market is moving.
While it takes a little knack to get used to, by learning how all these go together we can create higher confluence in our trading skill thus making more money. You see that it really is about reacting to the market and what it is telling us rather than just selling or buying.
( In the Video Above you can see a good example of this in play. )
Absolute Average Highs and Absolute Average Lows
Now let’s take these cycles even further, go to the daily chart or even weekly chart on any currency pair then look at the absolute average high and then look at the absolute average low. Jot these two numbers down or if you are a memory wiz just keep it as a memory. You can also easily just add a strong line on your charts at these strong numbered areas. Then when the market gets to these extreme areas, we want to see how the market reacts. Is there a good support at this low or is there a good resistance at this high? If so and price bounces off this area then that can indicate a high probability trade.
Why you may ask? Well because at extremes in general it is where the market turns around. That is basics of psychology as well when you think it. When you generally believe there is no return on a currency pair like it keeps dropping and once you have lost all faith of it turning around, then that is the time it usually does. And the big boys know this as well. Also this is commonly what happens in all markets. Just like when a season changes, so does the market or just like how we may have 2 weeks of strong bullish trading followed by 2 weeks of a sell off. These are what we are looking for to increase our chances of success in this business. This is our edge.
Above is a Chart showing this exactly in action. As you can see the price went really bullish up to the previous daily high which was now resistance and then a massive sell off happened. This is what is also referred to as a cycle, three weeks of bullishness to 3 weeks of bearishness, a cycle overall. While these types of trade do not happen everyday, when they do, I am all over them.