Forex Market Prediction Cycles with Divergence

Learn how to use Forex Market Prediction Cycles with Divergence. Read the article and watch the video tutorial to trade this strategy.

Name : Forex Market Prediction Cycles with Divergence
Indicators : Stochastic Oscillator (5, 3, 3) and Cycle Lines
Time Frame : 15min Charts and above
Strategy By : Analyst Navin Prithyani (forexwatchers.com)

Predicting Forex Market Prediction Cycles with Divergence using Astrology

In 2011, upon my visit to Ahmedabad, India, I met an Astrologer who shared some insights on his views on the financial markets. During our conversation he explained how the movement of planets in relative to the earth have impact on how life runs on a daily basis.

I wasn't able to grasp everything in detail that he went on explaining, but I did pick up on his explanation relating to Market Cycles. He mentioned that the market works in cycles. The factor of price does not have to follow this concept, but time does follow it. Obviously, being in the Forex markets for so long, I decided to put this concept together into technical terms and tried to apply it - surprisingly the results come out astonishing using Forex Market Prediction Cycles with Divergence.

How to use Forex Market Prediction Cycles with Divergence

The first thing I do is pull up any forex chart and look for a divergence between price and Stochastic Oscillator. Once the divergence is visible, I plot the Cycle Lines from point to point. This will draw a vertical line in future based on time that will display when we should exit our positions. Using this method you will usually be able to capture the entire strength of the cycle.

Confused yet? Don't worry - lets put all this into nice detailed pictures and examples so you can really get to grips with Forex Market Prediction Cycles with Divergence.

Step 1 : Identify the Divergence (The Entry)

If the market is in a downtrend, connect the top peaks.
If the market is in a uptrend, connect the bottom valleys.

Divergence is a great indication for a reversal of the immediate trend.

Uptrend Example

In this uptrend example we can clearly see the divergence between price and our Stochastic Oscillator indicator on the bottom. As this formation is shown, we can enter long (buy).

Downtrend Example

In this downtrend example we can clearly see the divergence between price and our Stochastic Oscillator indicator on the bottom. As this formation is shown, we can enter short (sell).

Step 2 : Find the Mid-Point

Look for the middle Peak or Valley (I'll call it mid-point from here on out) between the two points where we used to find our divergence as shown in the example image below.

Note : Ok, here's the tricky part. Make sure you pay attention while reading this and/or read this several times to grasp the idea completely.

Once you find the mid peak or valley, find out if the distance between point 1 to mid-point is larger or from mid-point to point 2. (refer to the image above to understand point 1 and 2). Once you figure our which one is larger, we will now get ready to plot the Cycle Lines.

Step 3 : Plotting the Cycle Lines (The Exit)

Always Plot Cycle Lines on the larger distance.

Rules : If the distance between Point 1 to Mid-point is larger, I would plot my Cycle from Point 1 all the way to one candle before the midpoint.

If the distance between midpoint and point 2 is larger, I would plot my Cycle from midpoint all the way to one candle after point 2.

Once your plot the Cycle, you will see the next area for exit based on time. Refer to example below

In the example above, since the distance between point 1 to midpoint was larger, I plotted my Cycle Lines from Point 1 all the way to 1 candle before the midpoint. Once I did that, I can clearly see what time I should exit my short (sell) trade that I initiated after point 2.

Example 1 : Sell Trade

In the Sell Trade example, we had a nice divergence that gave us a heads up that the market is going to be short. We enter our trade for a Sell. But for how long? We need to plot our cycles to answer that question. We measure the distance from the peaks to the midpoint and we see that the first peak to the midpoint has a larger distance. We plot our Cycle Lines from the first peak all the way to 1 candle before the mid point. Now we have a clear exit. We take our trade up until the next cycle. At the close of the candle on the cycle, we exit. This trade resulted in +49 pips.

Example 2 : Buy Trade

In the Buy Trade example, we had a nice divergence that gave us a heads up that the market is going to be long. We enter our trade for a Buy. But for how long? We need to plot our cycles to answer that question. We measure the distance from the valleys to the midpoint and we see that the first valley to the midpoint has a larger distance. We plot our Cycle Lines from the first valley all the way to 1 candle before the mid point. Now we have a clear exit. We take our trade up until the next cycle. At the close of the candle on the cycle, we exit. This trade resulted in +42 pips.

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