The Market Cycle, Expansion, Retracement, Reversal, Continuation

[Fairman]

The Market Cycle, Expansion, Retracement, Reversal, Continuation

Price doesn't move in a straight line. It cycles through phases, and recognizing the phase you're in can sharpen your decisions.

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Expansion. A strong, directional move, often driven by displacement. Candles are large, and structure breaks cleanly.

Retracement. Price pulls back into premium or discount, often filling imbalances or testing order blocks.

Reversal. Structure shifts against the prior trend, usually after a liquidity sweep.

Continuation. After a retracement, price resumes the original direction, breaking the previous extreme.

How to use the cycle:

1. Identify the phase on your higher timeframe.
2. During expansion, avoid chasing. Wait for the retracement.
3. During retracement, look for entry zones aligned with the larger trend.
4. During a suspected reversal, require stronger confirmation, since the evidence is only starting to build.
5. During continuation, manage trades and consider trailing stops.

Example: a bullish 4H expansion is followed by a pullback into a 1H order block. You wait for a 15M shift upward, enter, and target the previous high. That is a retracement-to-continuation trade.

Mistakes to avoid:

- Entering during expansion because you fear missing out
- Calling every retracement a reversal
- Ignoring the phase on the higher timeframe

Name the phase before you place the trade. It adds context in seconds.

[LondonNewsTrader]

A useful distinction inside the expansion phase is whether the move was scheduled or not. An expansion that starts on a CPI print or a rate decision tends to retrace differently from one that builds through a session. The event leg often has a gap in it, and the retracement either fills that quickly or not at all. An organic expansion usually pulls back more gradually into the areas you describe.

So in your example, I'd want to know what caused the 4H expansion before trusting the 1H order block. If it came from a surprise in the data that changed rate expectations, the pullback can be shallow and short, because the repricing is still going on. If it was a slow drift higher on no news, the deeper retracement is more likely.

Your first mistake on the list is the classic. Most people chase the expansion right after the release and buy the top of the first leg.

[FXS Prop Desk]

The cycle framework is a good way to stop treating every candle the same. A practical use: label the current phase on the higher timeframe in the pre-session notes, e.g. "4H: retracement into discount after expansion". It forces a decision on context before looking for entries.

Then the entry model can follow the phase. Retracement phases favour continuation entries at discount or premium levels, while expansion phases favour pullback entries with tight risk. Reviewing labelled sessions after a month also shows which phases you read well and which ones you tend to misjudge.

[Shadow Trader]

Calling every retracement a reversal was the mistake I made most, and what fixed it was measuring depth instead of judging by feel. I grade a pullback by how much of the expansion leg it gives back, using the leg's own origin and extreme.

Under 38 percent is shallow and usually means the move is still repricing, which fits what LondonNewsTrader said about data driven legs. Between 38 and 62 percent is a normal retracement, and beyond 79 percent I treat it as a possible reversal and stop looking for continuation entries.

Time matters as much as depth. If the pullback has already lasted more candles than the expansion did, say 14 bars against an impulse of 6, the market is usually building something new rather than resting.

For the pre session label FXS Prop Desk mentioned, I write the depth as a number, so 4H retracement at 50 percent rather than just retracement. When I review a month of notes, the trades taken past 79 percent stand out immediately.

Fairman, how do you label it when the 4H is in expansion but the M5 you execute on is deep in its own pullback? I have settled on following the 4H and halving size, but I still go back and forth on it.