How manage to change trading strategy in a market cycle?
Markets are cyclical. It is a fact. But I will tell you more - the markets are static. And the price always tends to its average value. The task of the trader is to adapt to the cycles and manage to change their trading strategy to the realities. There is no way to make money in financial markets with a single strategy at all stages.
I have identified three stages of the market:
This is the initial stage. The stage of accumulation of positions and the inability of the market at this particular moment to determine the direction. It is impossible to determine in advance when the flat will end and when it will begin. It is only possible to KNOW that the flat will FOLLOW. And it will follow from after the third stage, that is, the circle will close. What is called, in fact, cyclicity.
You can trade in the flat, and under the flat there are a lot of strategies tailored specifically for the price corridor. But when the flat finally ends, the second stage begins:
This is the most anticipated stage, and, despite this, the most hated. The fact is that as soon as traders adapt to the flat conditions, the flat ends and the trend draws positions in its direction. What does it mean? Averaging. And while traders are averaging, the trend continues. When all the stops placed from the flat are triggered, when the trend collects all these stops, when there is nothing left in this direction that the price could raise money for, the trend unfolds and the next, last stage of the market sets in:
Consolidation does not always mean flat. This can be a channel course of prices, or the preparation of a base for a change in trend.
The consolidation stage is followed by either a flat or a trend. Flat or trend closes the cycle. Surely many people remember the moments of the market when, after a single trend, there was an instant reversal and the price, without any consolidation, went into a trend of the opposite direction. Such moments do not occur often, so I consider the flat as the most frequent manifestation of the closure of the market cycle.
How to adapt to such a cycle? There is no concrete way. It is the same as asking how to learn to memorize foreign words - this is a matter of practice. There are no specific indicators determining the change in the state of the market, but there are some that determine the state of one particular cycle. These are either volatility indicators or moving averages. Bill Williams's alligator in theory is capable of determining two cycles at once simultaneously (trend and flat), but he does this with a great delay.
Therefore, the only way to learn how to trade cycle change, I think, is simply accepted as a fact - cycles change. You just need to get used to it, and know in advance that one particular cycle cannot last forever, and always be ready to change it.