Forex Trading Course: Chapter 9: Forex Market Cycle

Forex Market moves in a predictable cycle on a daily basis. It is as your local traffic, where you’ll have traffic jam during certain hours in a certain direction flow, and other hours at the opposite direction. If we can predict market direction during this cycle, we will have an advantage that most traders don’t have. It is like having local traffic radio on while driving, letting you know where are the accidents and delays, so that you can choose the least traveled road.

Market generally moves in the following manner:

5:00pm ~ 12:00am EST	Ranged market
12:00am ~ 2:00am EST	Market prepare to breakout
2:00am ~ 3:15am EST	Market reverse
3:15am ~ 5:00am EST	Market Trend Re-Establish
5:00am ~ 7:00am EST	Market Trend Continuation
7:00am ~ 8:15am EST	Market reverse
8:15am ~ 9:00am EST	Market Trend Re-Establish
9:00am ~ 9:30am EST	Market Minor Reversal
9:30am ~ 11:30am EST	Market Trend Re-Establish and Continuation
11:30am ~ 12:30am EST	Market Minor Reversal
12:30pm ~ 5:00pm EST	Market Ranged Continuation

The best way to use this market cycle information is to trade around the time of reversals. Of course it is extremely important to put the context of the market into consideration, and then possibly enter a trade if you have enough reason to justify it.

For instance, if the market has been relatively flat on risk sentiment, meaning there are no strong sentiment demanding for risk or seeking shelter in save-haven currencies, or just a regular trading day, you could look at the market just around the reversal time, especially the JPY pairs.

Then, once enter a reversal trade from the top or the bottom, depending where the market was trading at, then wait for the next hour or so and close your trade in profit. Of course, you need to consider the context of the market and there are no sentiment driven reasons for the market to move higher. Usually this will play out 8 out of 10 times, giving you at least 30 to 80 pips of profits, sometimes even more.

So I enter the market at around these reversal times, usually timing my entry just after a spike in the market. For instance, if you are looking to short the GBP/JPY just around the reversal and the market has been pushing it up, wait for a final spike up just around the reversal, and then you can enter a SELL trade, possibly at the top, for at least 50 pips of profit.

Remember, we look at the premarket trend and we are looking to trade AGAINST that trend that is how we trade the reversal times…

The second usage for the market cycle is the market continuation time. When you are holding on a trade, market may move up and down, and sometimes shake you out of a trade. But by knowing you are in a market extension time, you can hold on to your trade just a few moments longer for a extra 20 ~50 pips of gain. I have seen this time and time again, especially during the London trading hours, if I just held on to my trades until 7:00am, I would have made an additional 50 pips… This is a tip that is worth millions for the right person.

Of course, when you are in a losing trade and the market is going against you, sometimes we get emotional and want to get out of the trade when it is pretty much the worst case scenario… Keep your eye on the reversal time. If you are anywhere close to them, just hold on and the market will give you a better exit. Sometimes, even let you break even. Of course, once again, if the market is driven by risk sentiment, then I do not recommend holding on a losing trade, even if the reversal is just around the corner.