Been hearing this term thrown around in different trading discussions but never really got a clear explanation.
Seems like it’s something that affects market timing but not sure how it actually works in practice.
Markets go through cycles of optimism and fear. In the boom phase, prices rise sharply as traders believe they will continue to do so. Everyone takes on risk and credit is easy to get.
When the bust comes, reality strikes. Overpriced assets crash and traders panic sell, causing prices to plummet. Credit tightens and many investors look for safer options.
In forex, these cycles impact currency strength and central bank actions. Keep an eye on extreme market sentiment; when everyone is overly confident in one direction, it may be time to prepare for a market reversal.
The boom cycle is when prices rise and there’s a lot of enthusiasm in the market. During a bust, prices plummet and traders often panic, selling off assets quickly. This cycle repeats as traders become greedy in good times and fearful in bad. Recognizing your position in this cycle aids in making better entry and exit decisions, although spotting these changes can be tricky.
Markets overshoot both ways then snap back hard.
Boom phase sees rising prices and excitement while bust phase brings sharp declines. It’s a natural market cycle.