Market Cycles: How To Thrive In Different Market Conditions.
by Althaf Ahmed
Every market goes through trading cycles. There is no exception to this. Be it the Stock Market, The Futures or the Forex market. They all go through different phases. In this brief article, I wish to point out the different phases in the Forex market, identifying which, will help the trader know when to stay in the market and when to stay out.
Range Days: Historically, it has been seen that nearly 80% of the time, the market stays in a range. Range days are when the currency stays at a certain price limit and trades within it. For example, on a typical range day, the GBPUSD will stay within a low of 1.9600 to a high of 1.9675. This maybe the case for a day or, at times continue the whole week before a breakout appears. This is also called as “Calm before a Storm”.
Rally Days: Again, historical studies have proved that the market rallies only about 20% of the time and when it does, it creates new trends and levels. Rally days usually happen when price breaks out of the range and establishes a new high or low.
Strange Days: Strange days are those days when the market hardly moves at all. It is as if the financial world is on a vacation and simply not interested in trading. This is a rare phenomenon, yet is one of the phases of the market. Usually, when a market is well below the usual daily range, it is classified as Strange Days.
Here is a bit of statistics to help understand the market phases better. I have listed below, the 4 major pairs and their daily average range.
GBPUSD - 122 pips Daily Range
EURUSD - 84 pips Daily Range
USDCHF - 96 pips Daily Range
USDJPY - 78 pips Daily Range
In the above examples, when a pair falls below the daily movement, it is considered to be ranging and when it is way below it, it is considered to have entered the unknown land. If analyzed over a week, Range days occur at least 3 times a week. Generally 70-80% of the Mondays are ranging days.
Similarly, Rally days occur when price is above the normal daily range and happens only about 20% of the time in a week. The best day in the week is Tuesday, followed by Wednesday and Thursday. Tuesday, historically has had the best rally days.
Again, strange days occur less than often, and when price stays well below the range and when there is little movement. They happen, once or twice a month and are times when one should stay out of the market.
Lastly, I should add that the best days to trade are Tuesday and Wednesday followed by Thursday and the days to avoid trading are Monday and Friday.
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