Market cycles guide: Wyckoff, business phases, and key trading indicators

Navigating financial markets without understanding market cycles is like navigating a ship without a map; you might stay afloat, but you are at the mercy of the currents.

A market cycle is a general pattern or tendency in financial markets where periods of expansion are followed by contraction and eventual recovery, often repeating in a predictable sequence. While the widely known accumulation/markup model (Wyckoff method) is popular for technical analysis, other frameworks provide different lenses through which to view these movements.

These include the psychological cycle, which tracks the emotional extremes of investors; Elliott Wave Theory, which describes fractal, repetitive 5-3 wave patterns driven by collective crowd psychology; the business (economic) cycle, driven by macroeconomic factors like GDP and interest rates as it moves through expansion, peak, contraction, and trough; and time-based cycles, which look at calendar-driven patterns such as long-term secular cycles and Kondratieff waves.

Identifying cycles can only be done retrospectively, meaning that chartists look for prior highs and lows while attempting to identify cycles across different timeframes. Various cycles may have different time spans, intersect on a chart, and impact each other positively or negatively. Over the years, traders have sought to understand market cycles better and develop measurement tools for them.

There are different types and ways of looking at cycles. We will attempt to cover the most relevant ones to understand what market cycles are and how they can impact prices.

The market cycle is not merely a technical pattern but a profound reflection of collective human psychology. The Wyckoff model provides the structural framework, while behavioural finance explains investors' emotional states at each stage. The Four Phases (Wyckoff model):

This framework breaks the market into four distinct, cyclical phases driven by the actions of large, informed investors ("smart money").

This cycle looks at the macro-economy rather than just a price chart. It’s driven by GDP, interest rates, and employment.

This chart captures the interplay between the S&P 500 Index (equities), the Bloomberg Commodity Index (inflation/hard assets), and the US 10-Year Treasury Yield (fixed income) from 2020 through late 2025.

Following the 2020 lows, equities and commodities initially exhibited a strong positive correlation, fueled by immense fiscal and monetary stimulus. This "reopening trade" saw the S&P 500 surge, while the Bloomberg Commodity Index rallied alongside it as global demand outstripped supply.

However, by 2022, a critical divergence occurred: the Fed began aggressively raising interest rates to combat 40-year high inflation, causing the US 10-year yield to climb from below 1.5% in early 2022 to a peak above 4.5% by 2023. This shift led to a "synchronised decline" where both stocks and bonds fell together — a painful departure from their traditional inverse relationship.

Hurst cycle analysis is a technical analysis method developed by American engineer J.M. Hurst in the 1970s. Unlike standard technical analysis, which focuses on price patterns and momentum, Hurst analysis is based on the premise that financial markets move in predictable, recurring cycles.

Hurst's central thesis — detailed in his book, The Profit Magic of Stock Transaction Timing — is that price action is not random but is the result of multiple overlapping cycles of different lengths (or "degrees") adding together.

Hurst defined eight principles that govern how cycles behave and interact in the market:

• Principle of cyclicality: Price movements consist of specific waves and exhibit cyclic characteristics.
• Principle of commonality: Similar assets (like all stocks or currencies) tend to share standard cycles.
• Principle of summation: The actual price we see on a chart is the simple sum of all active cycles.
• Principle of harmonicity: Adjacent cycles are related by small whole numbers, typically a ratio of 2:1 (e.g., a 20-week cycle contains two 10-week cycles).
• Principle of synchronicity: Cycle troughs (bottoms) tend to occur at the same time across different cycles. This is why market bottoms are often "v-shaped" and easier to predict than tops.
• Principle of proportionality: The strength (amplitude) of a cycle is proportional to its length (wavelength). Longer cycles cause larger price swings.
• Principle of nominality: There is a standard set of cycles (the nominal model) that applies to most markets, ranging from 5 days to 18 years.
• Principle of variation: Cycles are not perfect; they can vary in length and strength over time.

The charts below display the EUR/USD on two different timeframes — the 1-hour and daily — using the Hurst Cycle Channel Clone (HCCC_LB) by LazyBear1. This indicator is designed to visualise the "nesting" of market cycles by plotting a shorter-term cycle (red channel) within a medium-term cycle (green channel).

The 1-hour chart (intraday view): On December 30, 2025, the price at 1.1745 has broken below the inner red channel and is testing the lower boundary of the larger green channel. According to Hurst's logic, the inner channel typically stays within the bounds of the outer one; a breach often signifies an extreme market condition or a potential cycle reversal.

The daily chart (contextual view): The daily chart shows a sustained uptrend throughout 2025, with both channels sloping upward. The current price is hovering near the top of the medium-term green channel.

When momentum fades and the red channel fails to reach the upper boundary of the green channel, it often highlights a local top. Currently, the price is at a critical juncture: a bounce off the lower green support on the 1-hour chart would signal a continuation of the daily trend, while a breakdown could indicate a larger cyclical shift.

Developed by Ralph Nelson Elliott, this theory suggests that markets move in a repetitive 5-3 wave pattern driven by the "collective unconscious" of the crowd:

• Motive waves (1, 2, 3, 4, 5): the primary trend. It consists of three impulsive moves up (1, 3, 5) and two minor pullbacks (2, 4)
• Corrective waves (a, b, c): a three-wave move that goes against the primary trend to "correct" the previous gains.

Key insights: these waves are fractal, meaning a 5-wave sequence on a 1-hour chart is often just a single small part of a much larger wave one on a weekly chart.

This chart provides a technical analysis of the EUR/USD currency pair from mid-2022 through late 2025, utilising Elliott Wave Theory to identify recurring market cycles. The analysis begins with a standard impulse wave (labelled 1-5 in blue), where the price trends upward in five distinct sub-waves, characterised by a strong third wave that drives significant momentum. Following this initial climb, the market enters a truncation wave (labelled A-B-C), a corrective phase where the final upward movement (wave C) fails to surpass the previous high of the impulse peak. This failure signals underlying exhaustion in the bullish trend and often precedes a sharp reversal, which is seen here as a steep decline into early 2025. By the end of the chart in late 2025, a new impulse wave appears to be forming, with the price currently consolidating near a local high (wave 5), suggesting the market is testing resistance before a potential new corrective cycle.

This chart illustrates the historical performance of the EUR/USD currency pair from 2020 through 2025, overlaying each year's price action to highlight seasonal trends and volatility. By plotting each year on a single 12-month axis, the visual emphasises the stark contrast between the euro's strength in 2020 (white line) and its significant depreciation in 2022 (pink line), which saw the pair dip below parity. The thick blue line serves as a five-year average (2020–2024), acting as a mean-reversion benchmark for the more volatile individual years. As of the end of 2025, the current price (light blue line) shows the euro trading in the upper half of its recent historical range, finishing the year with a bullish trend compared to the five-year average.

Ultimately, market cycles are a fundamental truth of the financial world, driven by a complex interplay of human psychology (Wyckoff model), macroeconomic forces (business cycle), and overlapping temporal patterns (Hurst analysis). Understanding these different lenses—from the micro-level actions of "smart money" to the macro-level shifts in GDP and interest rates—is essential for any disciplined approach to trading and investing. While identifying a cycle is often a retrospective exercise, learning to recognise the characteristics of accumulation, mark-up, distribution, and mark-down across various frameworks allows traders to anticipate potential shifts and avoid succumbing to emotional extremes. To deepen your understanding of how to practically apply these concepts, continue with part 2 of cycle indicators, which explores specific technical tools used to measure and identify these cyclical movements.