Long-term and short-term cycle reading is a skill anyone can learn. Long-term cycles occur over weeks, months, and years. The shortest are one-day deals that are primarily of interest to swing trading enthusiasts, who hold positions for a week or two. Whether your time horizon is short or long, it is crucial to understand how each cycle theory works and why so many people use them to refine a trading strategy. Here’s an overview of how the systems work, who uses them, and how you can identify where a particular market fits in a market’s lifecycle.
Daily cycle theory aims to identify the best selling and buying days in a week based on large amounts of historical data. For example, for the past 25 years or so, Mondays and Tuesdays have been the best times to buy stocks, with Thursday being the ideal selling day during bear markets (downtrend). Likewise, in a bullish period, Friday is the time to buy. Wednesdays and Thursdays are the best times to sell. These rules are general and should never be applied without doing further research on specific trades. But, as general guidelines, they can help you decide whether to exit or enter a position.
Long term cycles
If you are using a Exchange platform, it is possible to study relevant data on long-term cycles and make informed decisions. For example, there are four distinct parts of a cyclic motion, from start to finish. They are the accumulation, the mark-up, the distribution and the markdown. Knowing the key characteristics of each is essential in order to be able to identify where a particular security lies in the overall scheme of things.
After a market bottom, it is sometimes difficult to tell if it will continue to decline. One way is to look at the overall sentiment factor. If it has been negative for a while and is slowly starting to recover, the stock may be in an accumulation phase. Once media reports and general sentiment gradually shift from all-negative to relatively neutral, the build-up has begun. People come back and accumulate actions at a discount, at the lowest price per barrel.
At the start of the ramp-up, market sentiment shifts from a neutral tone to a more positive tone, more and more individuals and institutions begin to push prices up. Although there may be a few breaks in the ascent, the marking phase is the part of the curve that climbs to a high point before stabilizing.
This bullish attitude that is common in the markup period is now becoming decidedly mixed, and there is more sellers than buyers. Watch your trading platforms for signs of weakening price support, fewer buyers, and occasional breakouts down from previous supports.
The traditional downside of the chart, the markdown is when values continue to fall, sellers outnumber buyers, and no lows are in sight. The general feeling is negative but has not approached neutrality. The decline is the final phase of the significant cyclical pattern and immediately precedes the next cycle of accumulation.