Many traders continue to lose money, simply because they haven't fully grasped the market cycle logic.

Market movement essentially has only two forms: either a trend or a consolidation. But to truly understand trading, the cycle must be divided into four stages.

**Breakout Stage** is the first. At this point, the market is in a strong trend, with consecutive large bullish or bearish candles, and prices move rapidly without time for a pullback. In this kind of market, there is only one way to survive—follow the trend. Any counter-trend operation here is a dead end.

**Narrow Channel** is the second. It may look different from a breakout, but fundamentally it’s still a strong trend. Prices move within a very narrow channel in one direction, with very shallow pullbacks, usually only 1-2 candles deep. On larger timeframes, this is just a detailed expression of a breakout. The only approach is to trade in the direction of the trend.

**Wide Channel** is the third. Here, the market begins to weaken. The forces of bulls and bears are relatively balanced, and both sides can profit from two-way trading. Gaps will be repeatedly filled, and pullbacks are deeper, but the trend structure remains intact, with highs and lows slowly rising or falling. This stage can easily evolve into the next state—range-bound consolidation.

**Range-Bound Zone** is the fourth. Bulls and bears repeatedly tug within fixed upper and lower boundaries. There is a common saying: 80% of breakout attempts fail. So the strategy is to buy high and sell low quickly, until one side finally breaks through successfully, ending the cycle.

The market constantly switches and cycles between these four stages. Each switch has clear signals—for example, a sudden pullback during the breakout stage indicates that this phase is ending, and the next step is likely entering a channel. After multiple tests of previous highs, it often reverses into a range-bound zone.

Regarding reversal trading, it does exist, and it’s essentially trading against the trend. But the preconditions are very strict—only possible in weak trends (wide channel stage), and only when there is a clear top or bottom structure to act on. Trying to reverse in a strong trend usually results in small rebounds that can’t make waves. Reversals in strong trends are too difficult; don’t expect to turn the trend around directly.

Once you understand this cycle theory, you won’t rush to short after a big bullish candle or buy the dip after a big bearish candle.