The concept of long and short cycles in trading originally stems from Dow Theory, which categorizes trading cycles into long-term, medium-term, and short-term. Nowadays, it is more common to use different time frame candlestick charts to delineate these cycles, such as weekly, daily, 4-hour, 1-hour, 15-minute, 30-minute, 5-minute, and 1-minute charts. As a result, we often hear phrases like "the 4-hour timeframe is currently bullish," "the 15-minute timeframe is bearish," and so on.

Trading with different time frame candlestick charts results in varying trading frequencies, holding periods, stop-loss spaces, and profit spaces, and accordingly, different position management rules are required. Therefore, the issue of cycles is crucial in trading. Today, let's discuss the relationship between long and short cycles in trading, and also talk about how to choose the appropriate cycles to help everyone solve this problem.

1: Long cycles are composed of short cycles.

The definition of a trend is a series of continuously rising or falling peaks and troughs, a definition that applies to different time frames. For example, on a 1-hour candlestick chart, if the market continuously rises, it is understood to be a 1-hour uptrend. Within this 1-hour uptrend, at a smaller level, such as a 5-minute chart, there will be more upwardly rising peaks and troughs. This is somewhat similar to how our clock works, with 1 hour consisting of 60 minutes and 1 day consisting of 24 hours.

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It is easier to understand with a diagram. Please see the illustrative chart below.

The left side of the chart is a 1-hour candlestick chart, and the right side is a 5-minute candlestick chart.

On the left, within the 1-hour cycle, after the market bottoms out, it forms the first upward wave. This upward wave, on the smaller 5-minute cycle, which is the chart on the right, consists of five upwardly rising peaks and troughs. Therefore, this 1-hour uptrend is composed of these five 5-minute waves.

Other long cycles are also made up of different short cycles, and they all have this kind of relationship.

2: The initiation and directional change of long cycle trends start with short cycles.

This means that when a trend is about to begin or change direction within a long cycle, it is often first indicated by movements within the shorter cycles. For instance, if a long cycle is in an uptrend, it might start to show signs of reversal when the short cycles begin to form lower highs and lower lows, indicating a potential shift in the trend. This is a critical aspect of understanding market dynamics and timing entries and exits in trades.There is a saying, "The wind begins at the end of the duckweed, and the waves form between the ripples," which means that the development of things is from small to large, and the same principle applies to trend changes. Since the trend of a large cycle is composed of small cycles, the initiation or transformation of a large cycle also starts from a small cycle.

For example, a reversal in a 1-hour market trend must first form a reversal structure in a smaller cycle.

Let's look at the schematic diagram. We use the price crossing the moving average as the standard for the market's initiation and direction change.

On the left side of the diagram are the 5-minute level candlestick charts, and on the right side are the 1-hour level candlestick charts.

After testing the 132 integer support, the market bottomed out and reversed. The 5-minute level crossed the moving average, confirming the reversal time at 19:00 on April 13, with a price of 132.4. On the right side, the 1-hour level crossed the moving average, confirming the reversal time at 14:00 on April 14, with a price of 132.6.

The 5-minute level was nearly 20 hours ahead of the 1-hour level, and the price was also 200 points lower.

Therefore, by looking at smaller levels, one can identify the initiation and reversal of trends at better prices and earlier times. It is precisely because of this time cycle relationship that the trading logic of looking at the big picture but acting on the small picture is widely used. Entering the market early in a smaller cycle and obtaining a better price, with a smaller stop-loss space, results in a higher profit-to-loss ratio once the trend unfolds.

3: How should one choose between large and small cycles?

You can make a choice based on your own schedule.If you are trading part-time, your schedule is likely to be quite tight, and the energy you can devote to trading is limited, making it suitable for time frames of more than 4 hours. With such time frames, the trading frequency is low, and it's enough to check the market once every one or two days, which basically does not affect normal work.

If you are a full-time trader with more time at your disposal, you can opt for short-term trading at 15-minute or 1-hour intervals, where you have enough energy to invest.

You can also make a choice based on your personality traits.

For trades with a time frame of more than 4 hours, the holding period is long, and the waiting time for trading signals is also extended. If you have a quick temper and are not suited to this kind of long-term waiting, you might prefer shorter time frames like 15 or 5 minutes, where the trading frequency is high, and the holding period is short. If you have a more patient and slow-paced personality, you can choose a larger time frame.

Before engaging in actual trading, you can get a feel for the trading rhythm of different time frames on a demo account, and identify the most comfortable time frame that suits you best.