Market Stages

To trade currencies successfully, you must first understand the four market stages that individual currency pair and the overall market go through. These cycles tell you if you should be long, short or in cash.

Once you are able to identify what stage it is in, you can then trade accordingly to those characteristics. After a while you won’t even have to think about whether you should be long or short. You will know, without question, exactly what you should be doing NOW. Here are the four stages:

Stage One

Stage 1 is the stage right after a prolonged downtrend. This pair has been going down but now it is starting to trade sideways forming a base. The sellers who once had the upper hand are now beginning to lose their power because of the buyers starting to get more aggressive. The pair just drifts sideways without a clear trend.

Stage Two

Finally the pair break out into Stage 2 and begins the uptrend. The trend can be fueld by greed thus making it move up faster. Beware of price shooting straight up because near the top, greed turns into fear!!

Stage Three

Finally, after the glorious advance of stage 2, the pair begins to trade sideways again and starts to "churn". Novice traders are just now getting in! This stage is very similar to stage 1. Buyers and sellers move into equilibrium again and the pair just drifts along. It is now ready to begin the next stage.

Stage Four

This is the dreaded downtrend for those that are long this pair. Professionals who bought at the bottom are now taking profits. Fear will start to creep in on weak longs and they start to sell which will accelarate the downward movement. Most novice will hold on their shares hoping that the price will reverse. Eventually they can't handle it anymore and sell at the bottom only to see the price turn up again.