The Contraction, Expansion, and Trend Phase

Feb 8

Contraction, Expansion, and Trend Phase
*also known as the Forex Master Pattern*

The contraction, expansion, and trend phase, or the Forex master pattern, is a trading methodology that focuses on identifying and capitalizing on the recurring patterns and phases that occur in the markets. They are based on the concept of these three market cycles.

Institutional players play a significant role in shaping these market cycles observed in the markets.

1.Contraction Phase

• This phase represents a period of low volatility and consolidation in the markets
  
  
• During contraction phases, institutional players often accumulate positions and establish their trading biases.
  
  
• Institutional accumulation during this phase can create the necessary liquidity and order flow for a breakout in the subsequent expansion phase.
  

2. Expansion Phase

• The expansion phase occurs when market volatility increases and the market breaks out of consolidation, leading to bigger price movements.
  
  
• Institutional players execute their strategies by inducing price movements to entice retail participation. Depending on their goals, institutions may manipulate prices upward or downward, creating liquidity for their trades while taking advantage of retail sentiment.
  
  
• Institutional buying during this phase can increase the movement in price and volatility, leading to rapid changes in markets and trends.
  

3. Trend Phase

• Once the market establishes a clear direction following the breakout, it enters the trend phase.
  
  
• The trend phase marks the end of the contraction, expansion, and trend phases, which are marked by sustained directional movements powered by institutional profit-taking activities. Retail traders often find themselves on the wrong side of the trade during this phase, triggering panic, liquidations, and potential market reversals.
  
  
• The panic caused in this phase can eventually lead to liquidations.
  

While this is not a strategy, it is a versatile methodology that works on any timeframe and assets as long as it has enough volume on the market. You can develop many different types of strategies using the Contraction, Expansion, and Trend Phase.