Market Cycle Flashcards
What are the market cycle phases?
BO
Tight Channel / Broad Bull Channel
Trading Range
*Each pattern might be 1-2 bars or 20+ bars
What market cycle phase is this?
Bull BO
What market cycle phase is this?
Tight Bull Channel
- AIL
- Stop is far so big risk
- Probability of higher prices likely
- Best to buy for swing, but scalp is ok
- DO NOT SELL
What market cycle phase is this?
Broad Bull Channel
- Sometimes has bear legs, strong enough to reverse to AIS for some traders
- If PB reaches about 2/3rds probability for new high is about the same for new LL
- Ok to sell new high for scalp, if bull rally is weak
- Best to Buy PBs
- On smaller TF contains TR
- On higher TF, can be part of Tight Channel or BO
What market cycle phase is this?
Trading Range (TR)
- Bulls Buy Low (in Bottom 3rd) - Bears Sell High (in Top 3rd) - BLSHS - this is were the risk is low and reward high
- Probability better for bulls near bottom and top for bears
- On higher TF, can be part of Channel or BO
What market cycle phase is this?
Bear BO
What market cycle phase is this?
Tight Bear Channel
What market cycle phase is this?
Broad Bear Channel
When there is a PB after a Strong BO to start a Trend what is it a start of in the market cycle?
Once there is a PB in the trend after a BO the market cycle has now entered a channel.
As soon as it pulls back the BO Phase has ended
Does the market cycle ever end?
No, it does not
It is in a Never-Ending Cycle
When a BO to a new high occurs to start a Trend then Pulls back …
What phase of the market cycle would this be?
It is the start of a channel
As soon as it pulls back the BO phase of the trend has ended
What does a Trend begin with?
A trend begins with a BO
What defines a Momentum Trader?
They Buy high, expecting higher
Buy Strong BOs, expecting to be able to exit higher
High probability, but big risk (stop far below)
What defines a Value Trader?
Buys Low (PBs) to Reduce Risk - put stop below HL, especially after a new High
Sells High (PBs) to Reduce Risk - put stop above LH, especially after a new Low
Have lower risk and lower probability
What does a channel evolve into?
into a Trading Range
the channel eventually weakens and evolves into a TR
What is important to PAY attention to in a Bull Channel?
It is can the BEARS make money (and vice versa for a Bear Channel)
And if it is easy enough for the Bears to make money in the Bull Channel the Channel is likely to transition into a TR
The Channel eventually weakens and evolves into what?
TR
a Trend begins with what?
a BO
as soon as there is a PB after the start of Trend BO
what phase in the trend has ended?
The BO Phase has now ended
What is the PB a start of in the market cycle?
Start of a Channel
What does the channel phase lead to?
a Trading Range
What are Bear momentum Traders expecting?
Expecting Lower prices so they sell at lows
What are Bear Value Traders expecting?
Lower Prices but the Sell High to reduce risk
What does a Channel Evolve into?
a TR
a channel eventually weakens and evolves into a TR
75% of Bear Channels have a what?
a Bull BO
Only 25% of Bear Channels have a successful what?
Bear BO
Anytime I see a Bear Channel I should assume what?
It is going to transition into a TR
which it does more than 75% of the time
What should I be asking myself in a Bear Trend/Channel?
Can the Bulls make money?
And when I see clearly that they are it is a 1st sign that the Bears are weakening
(Vice versa in a Bull Trend/Channel
Value Trading = ?
Value Trading = Channel Trading still looking to short, Buying PBs
Evolving to Trading Range Trading = Buying Reversals
Momentum Trading = ?
Momentum Trading = BO, Buying at the Market, any good clear reason to trade the huge PRESSURE momentum
Once you get a stop order from a STOP ENTRY BULL chances are the market has transitioned to a what?
Trading Range
Every chart is a _____ or a _____?
Trend or a TR
Every Bar is a _____ or a _____?
Trend Bar or TR Bar
Markets have inertia, in a TR what is the 80% Rule?
Markets tend to continue doing what they’ve been doing
In a TR the markets are constantly trying to BO
The BOs will fail 80% of the time
Markets have inertia, in a Trend what is the 80% Rule?
Markets tend to continue doing what they’ve been doing
In a Trend, the markets are constantly trying to Reverse
The Reversals will fail 80% of the time
Here, in Bear Trend Reversals lead to LHs and Bears flags
Define Inertia and 80% Rule
Inertia = an object tends to continue doing what it has been doing and tends to resist change
Therefore markets tend to continue doing what it has been doing
If in a TREND 80% of REVERSALS will fail
If in a TR 80% of BOs will fail
PBs on higher timeframes are what on lower time frames?
Trading Ranges on lower time frames
Is this a Trend Resumption or Reversal?
Trend Reversal
When a TR lasts 20+ Bars, the prior trend is so far back that it loses influence and market loses direction
Probability for trend resumption fails to equal of a probability of a trend reversal
Therefore BO MODE is ACTIVATED and expect a Measured Move up or down
(MM could be the height of the TR initially and evolve to the height of the BO)
Is this a Trend Resumption or Reversal?
Trend Resumption
When a TR lasts 20+ Bars, the prior trend is so far back that it loses influence and market loses direction
Probability for trend resumption fails to equal of a probability of a trend reversal
Therefore BO MODE is ACTIVATED and expect a Measured Move up or down
(MM could be the height of the TR initially and evolve to the height of the BO)
What defines a BULL Trend?
Bull trend needs Major HLs
Do minor Higher Lows usually lead to BOs and create a new Major HL in a Bull Trend?
No they do not, Minor HLs is usually a leg in TR or PB
usually weak, and usually follows weak rally.
They do not lead to stong BOs
What is meant by High 1 or High 2 or High 3 in a Trend?
The amount of PBs that create a high above the Previous HL but have yet to break above it
Can there be a Bear Leg or Bear Swing in a Bull Trend?
Yes there can
Can a Bull leg be part of a swing in a Bear Trend of part of the Trend?
Yes it can be both
what is an endless PB?
When a PB grows into a trend reversal (falls below the bottom of bull BO)
No longer bull trend
Either TR or bear trend
Can a TR be as small as one bar?
Yes a TR can be one bar
Strong reversal after sell Climax, 2 Bar PB,
how long will the Bears wait before potentially selling again?
Ten Bars Two Legs
*It may also be the start of a TR
After how many bars of sideways movement does the prior trend lose its influence?
After 20 bars
*Neutral market now
*Market is in BOM
Identify different parts of the market cycle on this chart
Knowing the cycle that the market is currently in gives me the best opportunity to make the best trades as every BAR is a trade
What percentage of the bars on every chart are either in a TR or a Channel?
90% of the bars on every chart are in either in a TR or a CHANNEL
Decisions are easier when we create only two choices (binary decision)
List market cycle binary decisions
Binary Decision making
BO or Channel?
Unclear
*If unclear, assume BO
Only look to buy
Tight Channel is BO on higher TF
Tight or Broad Channel?
Tight Channel
*When unclear, assume tight
Only trade in direction of the trend - SELL
Major or Minor Reversal?
Minor Reversal
Generally, when there is a tight channel follow by a reversal they tend to be minor as the bears had complete control, the bulls will need to do some more for before a MTR occurs
Identify some binary trading decisions on this chart
Binary = Two choices (This or That)
