Thursday 15th December 2011

Some people trade via indicator or time-based cycles. I'm personally not a fan of this so probably won't ever consider these methods of trading.

However there is one cycle that is helpful in terms of providing some structure to the market and providing you with (potentially) some insight into the expected type of environment.

In it's simplest form, this would be a continual cycle between two different phases.

• Trending Phase <----> Consolidation Phase

The following Crude Oil chart provides a simple example of these two phases, where yesterday provided a beautiful trending market and today has (so far) consolidated. Will the recent bearish swing lead to a breakout and new trend? Time will tell.

This is not a formal part of my analysis.... just more "background" information that helps with placing current price movement into context. A trend will lead to consolidation which will lead to a new trend which will lead to a new consolidation. And on and on.





If you prefer to expand upon this with more detail you may wish to use the more traditional investment cycle. See here if you're not familiar with it: http://www.investopedia.com/articles/technical/04/050504.asp#axzz1gcT7g4eH

• Accumulation Phase
• Mark-Up Phase
• Distribution-Phase
• Mark-Down Phase

Or you may wish to use Don Miller's approach outlined in his NY Expo presentation (well worth watching): http://donmillerjournal.blogspot.com/2010/02/430pm-et-livestream-tv-broadcast.html

• Breakouts lead to trends
• Trends lead to extremes
• Extremes lead to backing and filling
• Backing and filling leads to consolidation
• Consolidation leads to breakouts
• Wash, rinse, repeat

Whether you use the simpler Trending Phase leading to Consolidation Phase, or one of these more detailed variations of the same thing, consider whether or not your trading will benefit from consideration as to the current market phase.