Charting Your Futures - Four Phases

Charting Your Futures - commodity futures trading with Jay Gallemore - Return daily for free commodity charts
Four Phases

The following study covers what CYF studies and observations show are the four distinctively different emotional phases, or cycles, every market goes through from the bottom to the top. A cycle is the length of time it takes to turn fear into greed, nothing more, nothing less. More importantly I believe they are repetitive, occurring over and over for as long as commodity markets have existed.

The first phase is despair. An accumulation period by the insiders involved in a particular market. During this period a long uneventful bottom develops. They know exactly what is going on with the crop, or product, and just how the news will be released to bring the lambs to slaughter. Prices are washed out and months go by unnoticed. Prices make little or no headway and the media is silent on the subject, or bearish.

The second phase begins with quiet price appreciation leading to the next price level, where distribution and new accumulation take place. This time the large money investors, who favors are owed by the insiders, are invited to join the group. Once this period is completed, phase three can begin, the mark-up phase.

The third phase, the mark up phase, begins with prices advancing at a much brisker rate. A new following is attracted, old line traders, some very experienced funds, and the professional traders, who now identify the upcoming feeding frenzy, and join in. This third phase takes prices to a much higher level, followed by a brief consolidation. At this time positions are adjusted for the final blow off phase, or phase four.

Phase four sees prices advance at an incredible, unsustainable rate. Attracting young mutual funds, the public, and anyone else who has speculative money. The blow off phase lasts as long as the money does. First, all of the positions accumulated in the previous phases by the professionals are carefully distributed. Near the end of the blow off phase, prices become extremely volatile. Large price moves are experienced on a regular basis. The public is taught not to worry, this is normal you know !! The news is very bullish. Distribution is completed during this period, and short positions are established for, you guessed it, the soon to follow phase one, "despair". During this declining period, options expire worthless, futures holders are margined out of the market, and finally a new basing period can begin.

This whole process can take months. I believe the only way to discover and profit from this reoccurring phenomenon is relentless observation over many years.



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Past performance of actual trades or strategies cited herein may not indicate future results. Trading in futures and options entails significant risks of loss which should be understood prior to trading and may not be appropriate for all investors.
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