What is a Recession?

What is a Recession?

A recession is a broad, sustained contraction in economic activity. While a rule of thumb says “two consecutive quarters of negative GDP growth,” business-cycle experts such as the U.S. National Bureau of Economic Research examine a wider set of indicators—output, employment, income, and industrial production—to confirm recessions. The key feature is that weakness becomes widespread across sectors and persists for months.

Warning Signs to Monitor

• Falling output: Industrial production, retail sales, and factory orders decline simultaneously.
• Labor stress: Unemployment rises, hiring slows, and work hours are cut.
• Confidence slumps: Consumer sentiment surveys andPMIs drop below 50 as businesses report weaker demand.
• Yield curve inversions: Long-term bond yields fall below short-term yields as markets anticipate rate cuts and slower growth.
• Credit tightening: Bank lending standards become stricter and credit spreads widen.

Implications for Forex Traders

Recessions usually prompt dovish central-bank responses—rate cuts, quantitative easing, and forward guidance—which can weaken the domestic currency. Capital often rotates into safe havens such as the U.S. dollar, Japanese yen, and Swiss franc, while growth-sensitive currencies (AUD, NZD, emerging-market FX) tend to underperform. However, currencies tied to safe-haven assets (like CHF) may strengthen.

Advanced Guidance

Build a repeatable, rules‑based process so decisions are consistent across sessions and instruments. Start from context (higher‑timeframe structure, positioning, macro tone), then define precise triggers and invalidation on execution charts. Track spread and depth so your order type matches conditions. Pre‑compute scenarios (breakout, fakeout, mean‑revert) and map actions for each to reduce hesitation.

Execution Framework

• Plan entries at levels with confluence (structure, momentum, time‑of‑day).
• Place stops beyond the logical invalidation, not arbitrary distances.
• Target at least 2–3R; scale out methodically and trail remainder.
• Avoid thin liquidity windows unless the setup explicitly requires it.
• Record slippage and spreads; poor fills can erase edge.

Review Loop

• Journal setups by session and pair to learn where they excel.
• Tag trades by catalyst (news, trend continuation, range breakout).
• Recalculate expectancy monthly; prune underperforming variants.

Risk Controls

Keep daily loss limits, reduce size after consecutive losses, and pause during regime shifts. Survival enables compounding; treat discipline and execution quality as part of your edge.