Market Structure & Liquidity · Entry 30 of 71

What Are Expansion & Retracement Phases?

The cyclical breathing of price in financial markets

Core Definition

Financial markets move in repeating cycles consisting of expansion and retracement phases. Understanding this cycle helps traders recognize when the market is trending and when it is temporarily pulling back.

Expansion Phase

• Represents the impulsive move in the market.
• 1. Characterized by strong momentum and large candles.
• 2. Breaks previous structure levels.
• 3. Moves toward new liquidity targets.

Retracement Phase

• Price alternates between impulsive expansions and corrective retracements as it seeks liquidity and maintains balance.
• Recognizing this cycle allows traders to align with momentum while waiting patiently for optimal entry points (Optimal Trade Entry - OTE).