Market Cycle Analysis

For every chart (Broad Market, Micro-level markets, Sectors, Stocks, Indices, etc.), using the Market Cycle Analysis framework puts aspiring traders in a better position to take advantage of the markets.

Every trader pursues trying to identify the long-term and short-term price action moves of the markets. The Market Cycle is a series of 7 unique price action moves that when combined create the natural progression of any financial instrument in the world.

We expand these movements with Chart Formations, patterns and Gaps in price action at the Opening Bell. This sequence of steps now gives us a "PROCESS" that is focused on helping predict the future of price action.

The markets is the ultimate leading indicator and generally leads the economy by several months, thus the Market Cycle gives us a preview into what to expect from supply, demand and price action.

You have heard at some point in your trading career that "a picture is worth a 1,000 words.

Then four (4) picture must be...worth 1 million words.

As a 30 Minute Trader, the Market Cycle Analysis boils down to..."What Phase or you in on the Market Cycle?" and "Where are you in the Phase - beginning, middle or near the end?"

Focus on identifying in every chart the Phase 1 (W patterns) and Phase 3 (M patterns).  Price actions in between these is where we want to focus majority of all our trades...especially big position size trades.

Every time frame has it's own unique market cycle.  When multiple time frames have price action in the same phase, this is the optimal time to increase your position size and execute trades with confidence.

Every market cycle has contained inside of it...mini market cycles. Note that a flag pattern on one time frame is the mini market cycle phase 4 on the lower time frames.

Market cycles can carry over into after-hours and pre-market for the next trading day. Similar for chart formations and patterns.

Flag patterns is the most frequent and predictable pattern in the Market Cycle Framework. Use Fibonacci Analysis to measure any flag pattern move speed, potency and strength of any upcoming reversal in price action.

So we only need to focus our strategies in a very limited area.

Now, most markets only trend about 1 or 2 days a week and the rest of the time is consolidation, range-bound or sideways price action.

I have found that also using the Open, High, Low and Close of every candlestick, on multiple time frames and price action is the window into what the markets are actually doing.

Stay away from Counter-Trend Trading and trying to out-smart the markets!

Price action will only provide short-lived profits in retracements and pullbacks and requires extra-fast execution before the dominant trend continues.

Trying to be first or out-smart the markets is for amateur traders....and they usually don't last very long before they "blow-up".

You can learn more details as you need them in the new online course...

Mastering the Market Cycle 

where you see step-by-step rules and conditions for identifying each Phase and how to trade them.

Complete guide shows the 4 Phases that every markets experiences with Price Action. Rules define clearly when the markets are favorably trending vs. not trending.

Broad Market Overview

Most aspiring traders think that the more you learn Chart Analysis, Technical Analysis and all the other trading jargon, the more money they can make.

So the unresolved question that eventually shows up in a loosing traders mind often is..."Is technical analysis the Holy Grail for making consistent profits?"

Today, we will seek to break open the technical analysis myth by laser-focusing on "The PROCESS".

What matters most is if the markets are trending or not!

The four most highly recognized US Markets that can be used as a gauge of market direction are the Dow 30 Nasdaq 100, S&P 500 and Russell 2000. Now as a 30 Minute Scalp Trader...our goal is to always reduce the time we spend on any of these trading concepts and find the best alternative to help us simply make "good, informed decisions that help reduce risk".

As you gain more experience in winning and loosing trades, you might come to the realization that..

"WHAT" is MORE Important than "WHY"

I focus on the Broad Markets and combine the four (4) indices into one chart to identify the following:

WHAT phase of the Market Cycles are all four markets in (i.e., uptrend, downtrend, consolidating or range-bound)? Use a quick top-down approach by looking at the Daily, Hourly, 15 Minute and 5 Minute charts to see WHAT chart formations, patterns or commonalities are among them. This allows a Scalp Trader to establish a short-term view and long-term view. WHAT support or resistance areas are the multiple markets finding? Perform Swing Pivot Analysis to see WHAT similar price action movements are any of the markets showing Determine congruence and divergence among strong markets and weak markets which allows Stock and Options traders to now scan for WHAT stocks are also behaving similar to the Broad Markets.

Obviously, there are numerous other indices and sectors that could be used...but are not necessary if you're not trading full-time.

By focusing on the foundation of the Market Cycle and price action, we can leverage our weight-of-evidence approach to trading NEWS.

Use a reliable source every morning to identify what news reports, economic events or social events are going to be released in pre-market and after the Opening Bell.

Sit-on-Hands with NO OPEN POSITIONS before the news is released and identify on macro and micro time frames where price action is in the Market Cycle Phases.

Now the majority of time, news will cause an action and then a re-action in price action, (I call these anomalies) so by knowing where we are on the Market Cycle phases, we will continue to trade the current Market Cycle phase until we see proof or evidence of changes in price action. 

Proof being price action breaking prior swing pivots or transitions into a new Market Cycle phase.

Focus on the re-action and determine if price action is still in the same Market Cycle phase as before the news. Only trade minimum positions sized immediately after news.

Here are some notes on how to handle your position size when trading before and after news. Must Read: Scalp Trading Tactics and Survival

Top-Down Approach

Most aspiring traders learn one way or another to employ a top-down approach that begins with Broad-based Macro Review of the Markets.

By evaluating the four markets Dow 30, S&P 500, Nasdaq 100 and Russell 2000 first, we can then break down the same "PROCESS" on a more laser-focused micro perspective of "what we actually trade".

So let focus on trading the ES - Emini Futures Contract.

Ultimately, the PROCESS we are creating that will significantly reduce the time we spend studying the markets and trading is the following:

1. Broad Market Analysis using the major indices.
2. Micro Analysis to identify commonalities between "what we trade" and within the broader markets
3. Now we can laser-focus in on an individualized time frame to execute trade setups and manage the risk of every trade.

Broad Market Analysis using the major indices.

Micro Analysis to identify commonalities between "what we trade" and within the broader markets

Laser-focus in on an individualized time frame to execute trade setups and manage the risk of every trade.

Within this process...lies the beauty and the beast. Analysis - paralysis.

No aspiring trader likes being wrong about a trade or the markets. The need to feel right and valued is an intrinsic human desire that manifests itself through the choices we make in life, love, education, career, religion, etc.

When you transform your trading mindset from trading for money to one of consistent "Decision-Making", you can better remove the psychology of the markets that hinders your progress.

Remember, trading has nothing to do with or reflect on your values, beliefs, morals or intentions.

Therefore trade what you SEE and not what you THINK!

For most aspiring traders, this is where the excitement is and usually leads to lots of "trial and error".

Why?

Without a proven set of rules and conditions that show you proof of a financial goal being meet, most strategies are not applicable to use for most traders. Scalp trading strategies can be as complex or as simple as you want them to be.

It is a natural magnet to focus on already pre-determined technical indicators as a quick way of finding trades. However, without a good understanding of price action and its movements, most aspiring traders will not see consistent profits.

Every strategy has to have a balance of identifying the Overall trend, focusing on Support/Resistance areas and giving you a clear indication of momentum either picking up or diminishing.

The most widely used trading tools and tactics by most traders are centered around...Candlesticks Analysis.

Candlestick analysis is used as a gauge to try an identify Buying/Selling Pressure on the charts. Now, traders spend years and $1,000's on education, seminars, books, etc trying to learn all the variations of Candlesticks and how to trade them.

Advanced traders spend hours learning programming languages to help them rapidly identify these subtle visual aids on their charting platforms.

But the question still is...Does this make you a better trader if you knew all of this?

What if as a 30 Minute Scalp Trader, for now you could skip all this extra homework and jump to strategies based on simple price action that make...MONEY NOW!

You can learn more about a proven price action strategy that consistently generates quick profits for the ES - Emini Futures.

Everything You Need to Consistently Generate 2+ Points In Profits using just 1 contract! Avg. Winning Ratio of 2 out 3 trades. 

NO programming required and NO additional software needed.  

All rules are based on simple Price Action Conditions...Guaranteed!

Start with a ES 5 Minute chart. Identify the overall Mini Market Cycle Phases for the chart with emphasis on the prior Phase 1 (W Patterns) and the Phase 3 (M Patterns).

Identify as many of the range-bound, consolidation and flag patterns you can in the Phase 2 up trends and the Phase 4 down trends.

Identify the candlestick analysis setups that come out of the Flag patterns.

Measure the moves and preliminary profit targets (Flag pattern lows and highs).

Measure the ATR - average true range for a proxy of price action targets and momentum moves.

Identify the prior day high and lows based on "pit hours".

Ignore the after-hours price action and final highs/lows of the day.

Using a simple 20 & 200 MA, when 20 ma > 200 ma and price action is above the Opening bell and crosses above the prior day high...go LONG and set 2+ point target.

Once you learn the basic mechanics of the strategy, when you are in the beginning of Phase 2 after a clear W pattern has formed, you can now enter the setups...and leave the initial stop at the low of the day.

By not moving the trailing stops...too fast...you can catch the bigger moves in Phase 2 up trends.

For example, using the Market Cycle Analysis on Daily Charts, when price action is clearly in a definite phase 2, and when you are scalp trading intra-day consider the following:

When price action breaks the prior day highs right after the opening bell, we get a setup/entry LONG; try and find prior swing pivot stops in the prior day (late session) so that we can hold onto the long momentum based trades and not move the trailing stops too fast.

Start with a ES 5 Minute chart. Identify the overall Mini Market Cycle Phases for the chart with emphasis on the prior Phase 1 (W Patterns) and the Phase 3 (M Patterns).

Identify as many of the range-bound, consolidation and flag patterns you can in the Phase 2 up trends and the Phase 4 down trends.

Identify the candlestick analysis setups that come out of the Flag patterns.

Measure the moves and preliminary profit targets (Flag pattern lows and highs).

Measure the ATR - average true range for a proxy of price action targets and momentum moves.

Identify the prior day high and lows based on "pit hours".

Ignore the after-hours price action and final highs/lows of the day.

Using a simple 20 & 200 MA, when 20 ma < 200 ma and price action is below the Opening bell and  crosses below the prior day low...go SHORT and set 2+ point target.

Once you learn the basic mechanics of the strategy, when you are in the beginning of Phase 4 after a clear M pattern has formed, you can now enter the setups...and leave the initial stop at the low of the day.

By not moving the trailing stops...too fast...you can catch the bigger moves in Phase 4 down trends.

One of the most important strategies a Scalp Trader can use is to create additional sources of profits because the markets are not always favorable for trading and not always trending.

Using the Market Cycle Analysis and framework, create a list (inventory) of stocks, ETFs, FOREX pairs and even Futures contracts.

Start with a very manageable list of at most 5 Stocks, 5 ETFs and 5 FOREX pairs (total 15).

Note: All the the following data is for illustration purposes only.

This step is extremely important and should be done with diligence and detail.

Conduct a macro and micro analysis of each security and identify which phase of the Market Cycle each one is in.

Group all the similar phase securities together. Conduct a macro and micro analysis of the Broad Markets.

Now, simply using the Market Cycle framework, start Swing Trading with the trending phases 2 and 4 to start generating recurring income...immediately.

Eventually all of your stocks, ETFs and FOREX pairs will cycle through the Phase 1's and move into the Phase 2's for you to start trading them LONG. Similar, all the securities on your list will move from a Phase 3 into a Phase 4 for you to start SHORTING them.

Once you get familiar with the steps...it will take you just a few minutes a week to find the right trades...and just keep following them through all the phases...1-2-3-4.

However, if the Broad markets are consolidating, range-bound or sideways (i.e., meaning the market cycle is in a phase 1 or 3) then consider reducing all new positions to a minimum amount.

Using the same approach we reviewed in the Market Cycle analysis, once we see the neckline of the M or W pattern broken, we can start getting ready to execute trades after confirmation of the higher low (W patterns) or lower high (M patterns).

Use these sub-list of securities to start trading available Options for incremental income.

Buy Calls for the sub-list of securities in Phase 2. I strongly recommend buying in-the-money strike price contracts for faster profits!

Buy Puts for the sub-list of securities in Phase 4. I strongly recommend buying in-the-money strike price contracts for faster profits!

Primarily use a macro set of time frames (i.e., Weekly and Daily) to execute trades and manage them. Intra-day trading requires more tools and capital to consistently generate income.

As each security goes through each phase of the Market Cycle, follow accordingly with these steps:

1. In Phase 1, close all open positions for the security and patiently wait for the next W pattern to complete and a neckline is formed and price action breaks the neckline and then forms a higher low. Begin buying LONG the security or Buy Options (Calls)
2. In Phase 2, manage existing LONG positions and on each retracement, consider scaling-in to another incremental small position until you have seen atleast 2 flag patterns (i.e., retracements). Stop buying at this point and only manage all current positions.
3. Once price action reaches a Phase 3, close all open LONG positions and patiently wait for the next M pattern to complete and a neckline is formed and price action breaks down below the neckline and then forms a lower high. Begin to SHORT the security or Buy Options (Puts)
4. In Phase 4, manage existing SHORT positions and on each pullback, consider scaling-in to another incremental small position until you have seen at least 2 flag patterns (i.e., pullbacks). Stop shorting at this point and only manage all current positions.

Now as time go by and you begin to get familiar with the Market Cycle Analysis, buying securities in Phase 2's, shorting securities in Phase 4's, and patiently waiting in Phase 1's and Phase 3's for each security...you can repeat this PROCESS over and over for recurring income.

Notice that when security XXX is in a phase 1's or 3's, you simply move over to the other securities that are in phase 2's and 4's.

Secretly in the markets, this is a simple version of how "money flows sector to sector", and all you need.

Not that fancy, complicated stuff...smile!

You can use the same strategies that we use for trading the ES E-mini Futures (i.e., ES 5 Minute Complete strategy).

You must specifically identify the mini-Market Cycle phase for the Stock or ETFs you are trading.

If you are in a trending phase 2 or 4, count the number of flag patterns or consolidation, range-bound areas in these phases.

Do not buy CALLS or PUTS after 2 occurrence of any retracements or pullbacks....because the momentum should be starting to diminish.

Only buy CALLS when the price action just came out of a Phase 1 (W pattern, i.e., Double bottoms after a downtrend with lower highs and lower lows) and breaks the neckline. Only BUY CALLS when price action is above the Opening Bell.

Only buy PUTS when the price action has just came out of a Phase 3 (M pattern, i.e., Double tops after a strong uptrend with higher highs and higher lows) and breaks the neckline. Only BUY PUTS when price action is below the Opening Bell.

Scalp Trading options usually can only be consistently profitable in "high-flying Stocks"....Stocks with high ATR (greater than 2 points) on the intra-day time frames. Otherwise the Option prices will not have enough volatility to move and create profits above your entry.

Remember, Option spreads can be excessively wide!

The other alternative, which is not very good, is to increase # of contracts and try and hold the positions overnight if and only if you are in a Phase 2 or Phase 4 on both macro and micro time frames.

	Using a (macro) Weekly and/or (micro) Daily Chart Analysis...apply the Market Cycle Framework to the Stock or Indices symbol.
	Simply identify the current price action and the Market Cycle Phase you are currently in and use the previous simple tactics for trading Options.

Buy Calls for the sub-list of securities in Phase 2. I strongly recommend buying in-the-money strike price contracts for faster profits!

Buy Puts for the sub-list of securities in Phase 4. I strongly recommend buying in-the-money strike price contracts for faster profits!

As constant learning and growing trader, the biggest advantage this program will offer you is that we use one common framework on all charts, all symbols and for all markets.

However, as we can imagine, every market has it's on unique characteristics that make it important to distinguish the price action movements, duration, volume analysis and other elements to improve our execution of trades and setups while continuing to manage or reduce risk.

With in reason, every trading tool, tactic or resource we use should be incorporated and leveraged into the Market Cycle Analysis and Framework so that we continue to use our advantage as best as possible.

Initially focus on using only 1 or 2 additional tools (at most 3 to start) with the Market Cycle Analysis and Framework to execute trades and manage them.

I recommend the Fibonacci Analysis, Opening Range and Support & Resistance. Other tools will be provided as a reference to help the learning process for Mastering the Market Cycle.

Every technical analysis tool, tactic and indicators can be used to provide additional weight-of-evidence for trade execution....but keep in mind....LESS is BEST!

You only need enough insights and information to make an informed decision and NOT "over-kill".

Using the Market Cycle Analysis and Framework we have clearly defined 4 price action phases that allows us to analyze for any competitive trading advantage we can get.

The Phase 2's and 4's contain detailed chart analysis patterns (i.e., Flag Patterns or consolidation patterns) and we want to gauge the strength, potency of the location and chance of a reversal.

Using Fibonacci Analysis we want measure each retracement in Phase 2's and each pullback in Phase 4's.

In conjunction, we can use Fibonacci Strategies to increase the # of setups we have in our arsenal for trading LONG and SHORT.

We also can use the Fibonacci Analysis on Phase 1's and Phase 3's to get an "early warning" when price action is learning in a direction for a breakout.

Use the swing pivot analysis to aid in trade execution and risk management.

When price action retraces or pullbacks between the 38% and 62% levels of the prior move, we refer to this area as the "Hot Zone".

In Phase 2 and 4 price action moves, this provides great additional opportunities to execute additional trades.

For example, when price action is in a phase 2, forms a flag pattern (retracement) and goes below the 38% levels and continues to the 50% or 62% we want to get ready!

Set a pending order back at the 38% levels so if and when price action gives us a swing pivot low reversal back up we will get pickup LONG with the momentum in a trade.

The Opening Bell often introduces excitement into the next trading day. One of the most simplest and easiest techniques for analyzing the morning price action is with a Opening Range.

By defining a duration of time for price action to establish it's intentions, we can also incorporate a strategy for buying and shorting using the boundaries of the Opening Range.

Leveraging the Opening Range price action and strategy with the Market Cycle Analysis and Framework creates a strong weight-of-evidence approach for executing trades.

There are several traditional settings for creating an Opening Range...using different times such as 3 minute, 5 minute, 15 minute and most common 30 minute opening ranges.

The short the opening range...the more aggressive the entry and likelihood for mistakes in the analysis of price action.

We want to take our Market Cycle Analysis definition of trending price action an to incorporate the opening range also. So, for example, the previous definition was as follows:

Market Cycle Phase 2 - price action demonstrating higher highs and higher lows over multiple days (i.e., for macro timeframes)

New and improved definition including Opening Ranges...

Market Cycle Phase 2 - price action demonstrating higher highs and higher lows and higher Opening Ranges over multiple days strengthens our execution and ability to increase our LONG position sizes when price action is strong and trending.

Similar enhancements will be made for our Phase 4 definition...

Market Cycle Phase 4 - price action demonstrating lower highs and lower lows and lower Opening Ranges over multiple days strengthens our execution and ability to increase our SHORT position sizes when price action is strong and trending.

Ok, let discuss...Opening Range Strategy. The idea should be simple and easy to implement.

Predetermine the opening range time frame you will be using before the Opening bell. So for example... 15-minute opening range. Once the 15 minutes have elapsed and you know where you are in the Market Cycle, we will look for entries based on price action crossing above/below the 15-minute opening range boundaries.

Only in Market Cycle phase 2's, when price action crosses above the 15-minute opening range high...and closes above the 15-minute high on the next bar, GO LONG.

Only in Market Cycle phase 4's, when price action crosses below the 15-minute opening range low...and closes below the 15-minute low on the next bar, GO SHORT.

Most recognized trading tool and tactic that aspiring traders gravitate towards is defining support and resistance lines in their chart analysis.

We want to enhance this simple technique with a better concept.

Price action often is not defined by a single point where buyers and sellers converge.

Most times, its a series of price action values that create and area (i.e., envelope) where there is a strong emphasis on price action and potential candlestick reversals.

Support and resistance areas will occur in every phase of the Market Cycle. The most important ones to focus on will occur in Phase 1 (W pattern...bottom area envelope) and Phase 3 (M pattern...top area envelope.

Use Swing pivots to create and identify the envelope areas as outlined in the Mastering the Market Cycle Guide.

It's very important to label these areas on all your chart analysis to give you an "Early Warning" if price action detours. 

Examples

Let's help you understand the trading goal for trading the ES Emini Futures. What you don't see is that I have analyzed the price action movements on the Daily, Hourly, 15 Minute and 5 Minute Charts for years.

Using the ATR - Average True Range indicator, I can tell you with extreme confidence that the ES will move on average 10 to 15 points most days.

If you look at the Daily chart (upper left-hand corner) you will notice that the ATR is declining from over 20+ point moves on average. That means there is plenty of room for me to get my "little old 2+ points profit and some".

Any time I am going to trade a Stock or Option, I analyze the price action range using the ATR to help with determining a realistic target to set for the trade.

Use the Daily ATR and the specific time frame you are trading the setup on...don't set targets for more than 2*ATR for scalp trade setups. 

So having a set of price action rules that identify extreme moves outside of the prior days range makes it easy to capture 2+ points most of the time.

Secret: If we know we can capture 2+ points consistently from our setups, then we only have to focus on Position-Size to increase our profits as a multiple of 2+ points per contract we trade.

Example: If I want to make $1,000 in profit...don't try and get 20 points in profit from a single price action move, instead I go for 2+ points...but increase the # of contracts to 10.

Obviously, you would make sure you are in a trending phase 2 or 4 on the Market Cycle to provide the weight-of-evidence for taking a bigger position size trade.

You are now ready to start experience the joy of scalp trading with simple price action rules and having more time than you can ever imagine.

No more struggling with your trading career and freedom journey. You now have support from me to help you get the results that you want!

You can now join me in the LIVE Trading Room or start to schedule one-on-one time with me to help guide you even more...