M1. L3. Understanding Market Cycles

Summary

This lesson delves into the concept of market cyclicity, a fundamental aspect of technical analysis for successful trading. The instructor explains how to identify upward, downward, and sideways market trends, focusing on the importance of understanding trend dynamics, including potential reversals and momentum. The use of the zigzag indicator is introduced to help recognize trends, emphasizing the significance of trading with the trend and entering the market at opportune moments. The lesson also covers the identification of trend channels and the strategy of buying at support and selling at resistance levels.

Takeaways

• 📈 The importance of understanding market cyclicity for successful participation in the market is emphasized.
• 📊 Cyclicality is the cornerstone of technical analysis, enabling strategic market trend analysis.
• 🌐 Learning to identify market trends, including upward, downward, and sideways movements, is crucial for investment decisions.
• 🔄 Understanding the nature of a trending market, including potential trend reversals and momentum, enhances decision-making efficiency.
• 💡 The concept of 'trading with the trend' is highlighted as a fundamental principle for investors.
• 📊 A trend is characterized by higher highs and higher lows for an upward trend, and lower highs and lower lows for a downward trend.
• 📉 The Zigzag indicator is introduced as a tool to identify market cyclicity and trends.
• 🔑 Two complete cycles are necessary to confirm a significant or valid trend direction.
• 📌 Trend channels, made up of resistance and support levels, provide a framework for analyzing market movements and volatility.
• 🛑 A break above resistance in a downward trend channel can signal a potential buying opportunity.
• 🌟 Incorporating an understanding of market cycles and dynamics can add an element of fun to the decision-making process.

Q & A

What is the main focus of the third lesson in the share trading investment program?

The main focus of the third lesson is on understanding the cyclicity of the market, which includes identifying trends and dynamics that can give an edge in investment decisions.

Why is cyclicity considered the cornerstone of technical analysis?

Cyclicity is considered the cornerstone of technical analysis because it allows for the analysis of market trends and dynamics, which is essential for making strategic investment decisions.

What are the three key objectives the lesson aims to achieve?

The three key objectives are to develop an understanding of market cyclicity, learn the nature of trending markets including potential reversals, and to learn how to benefit from a trend by getting in early with the smart money.

What does the speaker mean by 'trading with the trend'?

'Trading with the trend' refers to making investment decisions in line with the direction of the market trend, which is believed to increase the efficiency and timing of trades.

How are trends typically identified in the market?

Trends are typically identified by looking at patterns of higher highs and higher lows for upward trends, and lower highs and lower lows for downward trends.

What is a 'zigzag indicator' and how is it used in trend identification?

A 'zigzag indicator' is a tool used to help identify the cyclicity in the market and to determine trends by smoothing out price movements and highlighting the significant turning points.

What are the two phases of a trend and how do they differ?

The two phases of a trend are Phase 1 and Phase 2. Phase 1 is in the direction of the overall trend, while Phase 2 is a correction or a move in the opposite direction. Phase 1 is typically longer than Phase 2 in the direction of the trend.

How many cycles are needed to confirm a valid trend?

Two cycles are needed to confirm a valid trend, which involves observing two complete phase sequences of one phase one and one phase two.

What is the significance of trend channels in analyzing market movements?

Trend channels, formed by connecting highs (resistance) and lows (support), provide a visual representation of the region where price is moving, helping to analyze volatility and identify potential support and resistance levels.

How can trend channels assist in making buying and selling decisions?

Trend channels can assist in making buying and selling decisions by indicating potential entry and exit points. For example, buying when the price bounces off support and selling when it hits resistance.

What scenario would suggest a potential change in a downward trend?

A potential change in a downward trend could be indicated when the price breaks above the resistance level, suggesting more potential to move up rather than continuing the downward trajectory.

Outlines

00:00

📈 Understanding Market Cycles and Trends

The first paragraph introduces the third lesson of a share trading investment program, focusing on the concept of market cyclicity. It emphasizes the importance of recognizing whether the market is trending upwards, downwards, or not trending at all. The instructor promises to delve deeper into this topic, explaining how to identify market trends and dynamics to make informed investment decisions. The lesson aims to teach the nature of trending markets, including understanding upward and downward trends, sideways markets, and potential trend reversals. It also covers the significance of getting in early with the smart money to benefit from market trends, which are fundamental to technical analysis.

05:02

📊 Technical Analysis of Market Trends

The second paragraph continues the discussion on market trends, introducing the concept of the zigzag indicator to identify cyclicity in the market. It explains the importance of trading with the trend and how to use the indicator to gain an edge in the market. The paragraph details the two phases of a trend, phase one and phase two, and how they relate to the overall trend direction. It also explains the significance of two complete cycles in confirming a valid trend, using the concept of higher highs and higher lows for an upward trend and lower highs and lower lows for a downward trend. The paragraph concludes with an example of how to identify trend disruptions and the use of trend channels to measure overall market movements.

10:04

📉 Analyzing Downward Trends and Trading Strategies

The third paragraph provides an in-depth explanation of downward or descending trend channels, which are characterized by a series of lower highs and lower lows. It discusses how to identify resistance and support levels within a trend channel, which are crucial for understanding price movements and volatility. The paragraph explains how to use these levels to determine the best times for buying and selling decisions. It also illustrates how a break above the resistance level can indicate a potential change in the downward trend, offering insights into trading strategies when the market is in a downward trend channel. The lesson concludes with a reminder of the importance of technical analysis in making informed trading decisions and the instructor's anticipation of the next lesson.

Keywords

💡Cyclicity

Cyclicity refers to the recurring patterns or waves of ups and downs in market trends. It is a fundamental concept in technical analysis, which is the focus of the video. Cyclicity helps investors identify whether a market is in an upward, downward, or sideways trend. In the script, the instructor emphasizes the importance of understanding cyclicity to make informed investment decisions, as it forms the basis for analyzing market dynamics and trends.

💡Trend

A trend in the context of the video represents the general direction in which prices move over a period of time. It can be upward, indicating a rise in prices, downward, indicating a fall, or sideways, indicating no clear direction. The script discusses how to identify these trends and their significance in making strategic investment decisions. Understanding the nature of a trend is crucial for timing purchases and sales in the market effectively.

💡Technical Analysis

Technical analysis is a method used by traders and investors to evaluate securities and make decisions based on past market data, primarily price and volume. The video script highlights technical analysis as a cornerstone for understanding market cyclicity and trends. It is used to forecast future price movements by studying charts and patterns rather than focusing on the fundamental aspects of a company.

💡Candlesticks

Candlesticks are graphical representations of price movements over a specific period, typically used in financial charts. Each 'candlestick' or 'bar' in the script represents the opening, closing, high, and low prices for a given time frame. The color (green or red) indicates whether the closing price was higher or lower than the opening price. The instructor uses these to illustrate the concept of market trends and cyclicity.

💡Zigzag Indicator

The Zigzag indicator is a technical tool used to identify cyclic trends in the market by smoothing out price movements and highlighting the primary trend direction. In the script, the instructor mentions the Zigzag indicator as a means to help identify the cyclicity needed to recognize trends, which is essential for making informed investment decisions.

💡Phase One and Phase Two

In the script, 'Phase One' and 'Phase Two' refer to the two distinct parts of a market cycle within a trend. Phase One is in the direction of the overall trend, while Phase Two is a correction or a move in the opposite direction. The instructor uses these terms to explain how to identify the trend's momentum and potential reversals, which is vital for understanding the market's behavior.

💡Resistance

Resistance in the context of the video is a price level that an asset's value has difficulty surpassing, as it is seen as a 'ceiling' or upper limit. The script describes how connecting highs on a chart can form a resistance line, indicating a level at which the price tends to bounce back down, which is important for understanding upward trend channels.

💡Support

Support is the price level that an asset's value does not easily fall below, acting as a 'floor' or lower limit. In the script, the instructor explains how connecting lows on a chart can form a support line, which is a key part of understanding downward trend channels and market behavior.

💡Trend Channel

A trend channel is a technical analysis tool that consists of two parallel lines drawn on a price chart to identify the range within which an asset's price moves. The script discusses how to form a trend channel by connecting highs (resistance) and lows (support), which helps in analyzing volatility and potential entry and exit points for trades.

💡Momentum

Momentum in the video script refers to the strength or force driving the market price in a particular direction. It is used to assess the likelihood of a trend continuing or reversing. The instructor discusses how understanding the momentum of a trend can help investors make more efficient purchasing decisions.

💡Reversal

A reversal in the script indicates a change in the direction of a market trend. It is a critical concept for investors as it signals a potential shift from an upward or downward trend to a sideways or opposite trend. The instructor explains how to spot signs of a trend reversal, such as when the market fails to make new highs or lows, which is essential for timing investment decisions.

Highlights

Lesson focuses on understanding market cyclicity and its importance in technical analysis.

Explains the concept of market trends and how to identify if the market is trending upwards, downwards, or not trending at all.

Discusses the significance of recognizing the cyclic nature of markets for making informed investment decisions.

Introduces the concept of phase one and phase two in market trends and their role in defining the direction of the overall trend.

Describes how to identify a valid trend by observing two complete cycles of phase one and phase two.

Clarifies the difference between upward and downward trends, characterized by higher highs/lows and lower highs/lows, respectively.

Explains the use of the zigzag indicator to identify market cyclicity and trends.

Details the importance of trading with the trend and the benefits of doing so.

Teaches how to spot potential trend reversals and understand trend dynamics for better investment timing.

Illustrates the use of trend channels to measure overall market movements and identify support and resistance levels.

Describes the process of drawing trend lines to connect highs and lows to establish a trend channel.

Discusses the significance of support and resistance levels in determining entry and exit points for trades.

Provides an example of how to identify a downward trend channel and the strategy for potential buying decisions.

Emphasizes the importance of understanding market dynamics for making more efficient purchasing decisions on stocks.

Encourages the integration of technical analysis into the investment decision-making process for better results.

Concludes the lesson by summarizing the key points and expressing hope for the application of the learned concepts in practical scenarios.

Transcripts

all right ladies and gents a massive

welcome back to your third lesson of

your share trading investment program we

have a lot to look forward to coming up

in this lesson and I'm sure you're just

as excited as I always am to get stuck

into the amazing content that lies ahead

of us in the previous lesson we spent

quite a bit of time speaking about all

the different kinds of elements that we

need to start considering in order to

start participating in the marketplace

successfully one of those key ele ments

that we spoke about and that I promised

you we would elaborate a lot more on was

the cyclicity of the market how the

market trends and being able to identify

really if it's trending upwards

downwards or not trending at all so

we're going to be spending this entire

lesson just diving into the cyclicity of

the market how to read those certain

dynamics that are going to give us the

edge in our investment decisions so

without further adue let's get into it

so as always it's an absolute pleasure

for me to be a part of this journey that

you're embarking on on we want to be

able to walk away from this lesson

having developed an understanding that

the markets are cyclical cyclicity is

the Cornerstone of technical analysis

because without cyclicity we wouldn't be

able to conduct the analysis that we do

in order to make our strategic approach

to analyzing market trends and Dynamics

a success so looking at the second

objective that we want to accomplish is

that we want to be able to learn the

nature of a trending market and I don't

just mean

understanding an upward Trend a downward

Trend or sideways Market where there is

no identifiable Trend I want you to have

the confidence and understanding how to

see when a potential uh reversal in a

trend could be occurring or when

weakness in a trend is starting to play

out or when there's a lot of momentum

that the trend is actually still using

to push either upwards or downwards

because if you're able to kind of

understand the longevity of a trend or

the lifespan of a trend or the nature of

its Dynam Dynamics when it reverses

that's going to make your purchasing

decisions on the shares that you're

interested when looking at specific

stocks a lot more efficient third thing

that we want to be able to walk away

from uh this lesson in understanding is

learning how to benefit from a trend by

getting in early with the smart money

cyclicity in the market which is what

defines a trend or which is what creates

a trend is one of the most important

parts to technical analysis all right

let's get stuck into core topic number

one which is going to be reading

cyclicity if I give you this chart

that's painted on the screen right now

and I say to you which way is it

trending thankfully because we're only

using an element of technical analysis

you don't need to understand what every

single bar is actually doing and when I

say bar actually mean these candlesticks

that you're looking at these green and

red candles sticks which are

illustrations of price movement over a

specific period of time however the

factors play out on a daily basis which

affects the price of the stock is what

we'll see here in the different changes

of the green and red bars so which is

why some of the green and red bars are

different sizes all that we need to know

is how to look at a collection of These

Bars just like you are right now and

understand if on average the market is

trending up down or sideways in this

case the actual answer to this is that

it would be trending both upward and

downward

and the reason for that is because

initially when we see the first

collection of bars from the left that

we're looking at on the far left of the

screen we see a couple of green bars

going up and then two bigger red bars

going down then three green bars going

up and then a couple of red bars going

down to where the market then moves a

little bit sideways goes down slightly

and then really shoots up with a couple

of big green bars moving upward those

sort of green bars that massive Spike

and volatility is what really starts off

a trend it's really what gets a market

out of a sideways moving Direction and

starts to get its momentum moving either

in upward or downward direction we need

to understand a few elements about what

actually defines the trend there's a

funny old saying that you should trade

with the trend because the trend is your

friend and as an investor there is no

better reason to study the technicals

other than that description right there

we need to be able to identify how to

trade with the trend and where more

specifically to get into our investment

decisions in line with that Trend in

order to be a lot more efficient in our

timing behind our executions cyclicity

will show you if the market is trending

and in which direction all right so

let's get into breaking this down a

little bit further a downward trend is

defined by a series of lower highs and

lower lows overall and then obviously on

the inverse an upward Trend would be

defined by a series of higher highs and

higher lows obviously if you were just

looking at one green or one red bar at a

time you would see ups and downs all the

time so trying to identify the trend

would be quite confusing the zigzag

indicator is going to help us identify

the cyclicity in the market that we need

to consider to identify Trends we'll be

looking at trading with the trend most

of the time so identifying the trend and

reading that icity that forms a trend is

just going to be able to help us get a

more of an edge behind our efficiency in

the market and obviously help us find

the most opportune time to actually be

getting into the markets a trend is made

up of two different phases a phase one

and a phase two a phase one is in the

direction from left to right moving up

or down of the overall trend and in this

case it's the purple line moving from

the bottom to the top all right and it's

in the direction of the overall trend as

you can see here we know this because

the trend has already played out in this

circumstance so we're looking at that

number one and we can see that is a

phase one because it's in the direction

of this overall trend it's moving

upwards and the overall trend here is

obviously upwards then you see a number

two which moves down slightly after that

zigzag turns around then we see it move

back up again in the direction of that

overall trend which is why it's a number

one then we see a move in the opposite

direction of that overall trend and

we're not looking at the individual

candlesticks all over the place we're

not looking at the green and red bars we

just following the purple zigzag and

this is why this is so easy when you're

in an upward Trend the phase ones are

always going to be longer than the phase

2os now obviously if you're in a

downward Trend the phase ones would be

the movements in the direction of that

Trend still there's no difference that

plays out we'll get into that now with

an example but just understand that a

phase one is always going to be longer

in the direction of the trend than what

the reversal of the phase 2 is going to

be so how many cycles do we need in

order to confirm that we have a

significant or a valid Trend two cycles

ladies and gents is what defines a valid

Trend I've highlighted that on your

chart at the moment on the screen in

front of you so you can actually see

that if we start from the far left at

the bottom that initial Phase 1 occurs

then the correction of the phase 2

occurs that is one cycle then we see

another phase one occur and in the

correction of the phase two that is two

complete cycles that we see there which

I'll Define for you in the next coming

slides is that if we look at where the

first phase one turns into a phase two

that turning point where it it goes up

and then immediately starts to turn down

that is our high point in the cycle okay

then where the next phase one starts

after our first phase two there we see

that's a low point and it goes up to the

extent that phase one then turns into

the next phase two that is another high

point so we can see that high point in

comparison to the previous high points

is higher so we have a higher high and

the next low that is formed when the

phase two turns into the phase one and

so on and so forth is higher than the

other low which is what really defines

an upper Trend a series of higher highs

and higher lows so if you look at where

I just highlighted in yellow in the

previous arrow pointing to the left as

well you'll see that this low takes out

the previous low for the first time so

we see the low interrupted for the first

time the one that is highlighted in

yellow moves lower than the other low

with the left arrows pointing for the

first time now this happens for the

first time in this entire upward Trend

so this is what we can see now as the

first sort of disruption in this overall

trend but more importantly and very

interestingly the first time we've now

obviously seen this upward Trend

disrupted

look what happens after that after that

yellow point we see the market play out

a little bit we don't see those highs

getting much higher at all in fact we

don't see the trend continue at all the

market fails to break that high level

and uh well the highest point that it

actually reached in this overall upper

Trend in general and then it plays

around it can't really find its true

trajectory or momentum anymore and then

eventually it just really drops we see

that last phase just really dro to the

downside and take out all the previous

work that had been done by that initial

upward Trend so there are many different

ways that we can actually measure

overall movements in the marketplace and

how we do that is by also making use of

trend channels now obviously you could

already assume that this one is in an

upward Trend trajectory because you can

see the overall phase ones are longer

than what the phase 2os are there's

longer moves moving up than they are

moving down which will on average form

an upward Trend now we can see if we

just connect these overall highs if you

look to the far left of your screen

where the black line is connecting that

first High you start to draw your eye to

the right along that line you can see it

touches another high and then as you

progress to the right even further you

can see it touches another high and then

goes through another bar this is what we

call a level of resistance okay wherever

you see the highs touching that trend

line is what we would call resistance

almost acts as a ceiling where price

moves up bounces off the ceiling then

comes down so on the inverse we would

have support where we see price touching

that trend line moving up going back

down to touch that trend line moving up

and if we obviously have both a level of

resistance and a support we can then

confirm that we have a trend channel so

this channel just shows us a region or a

Zone where price is actually moving in

between and it helps us analyze the

amount of volatility that exists between

the support and resistance line that

then forms the momentum that we can keep

track of if you know that price is going

to be bouncing off of a level of

resistance and moving up from a level of

support then all you really need to be

studing is how to buy it support and

sell it resistance so on the inverse we

also have a downward Trend and as you

already know by now and it's a series of

lower highs and lower lows overall and

obviously what we're looking for is

longer f ones in the direction of the

overall trend shter phase two pullbacks

and obviously if we connect a few of

these highs we can see quite a few times

where price tends to hit that resistance

trend line and then move to the downside

and then on the inverse we obviously

have our support level where price hits

it and then bounces upward hits the

support level bounces upward hits the

support level again for the third time

and then bounces upward how do we know

when the right time is once we've assess

the value to actually get into a buying

decision if the market is in a downward

Trend Channel we would wait for a

certain scenario just like this one

where price actually breaks above that

resistance level and shows more

potential to move up then continue in

that downward trajectory so that ladies

and gents was a brief explanation of a

downward or descending Trend channel so

ladies and gents that is it for this

lesson I hope you've had a really good

time I always do especially in in

technical explanations because it really

helps paint a picture of what it is that

we're looking at on a day-to-day basis I

know it's sometimes not always

interesting to look at company reporting

but if you start to really consider

these cycles and the Dynamics that

create these Cycles like the phase ones

and twos and the trends that they create

overall it starts to become really

interesting and you start to include the

element of fun in your decision- making

process so without further Ado ladies

and gents that is it for this lesson I

really enjoyed my time with you and I

hope you did too I look forward to the

next one and wherever you are in the

world good morning good afternoon or

good evening we chat soon

cheers