Market Structure
Carrying on from Market Sequencing, it’s now time to take a look at Market Structure. Within this episode we deep dive into working out when market structure has been broken, also taking a look at examples of when it hasn’t. How can we use this to aid our bias and stay out of the market when necessary?
Market structure is vital to understand as a trader.
It will tell you when to take trades
And it will also tell you when to avoid taking trades (arguably more important)
So we know from the previous video covering market sequences, that when the market is moving up it will be creating a series of higher highs and higher lows on the lower timeframes and potentially the higher timeframes depending on how long the move has been in progress for.
Every-time the market changes direction a 'swing point' is created (a higher high, higher low, lower high or lower low) and market structure is formed within the market.
https://www.tradingview.com/x/7dWFlIRg/
In this example here you can see that he market has pushed and created a new higher high,
We’ve then fallen back and printed a higher low,
On the next drive up the market sees a full body closure above the previous higher higher confirming that we have now broken structure.
https://www.tradingview.com/x/HNQ6rN09/
In this example, price action repeats the same process,
We have formed a new HH and HL within the market.
However, on this push up the market fails to break structure and instead creates a wick above the previous higher with a body closure below.
In this example, price has not broken market structure.
This would suggest to us that there may be a short term shift in direction before a retest of this structure,
We may now go and form a lower low within the sequence.
This technique should only be used as a guide to understanding market direction. We will be covering other aspects within this strategy that will sharpen our ability to hone in on the areas where the market is really looking to reverse and trade them accordingly.
Now let’s have a look at major and minor structures within the market.
In the market sequence video we mentioned that within each sequence of swing points there will be smaller swing points on the lower time frames.
The easiest way to determine what is minor and what is major structure is to imagine the market like this.
https://www.tradingview.com/x/sHJK6VQT/
This screenshot was taken on the 2hr timeframe.
You can see within this timeframe the market breaks structure multiple times, however that does not mean on the higher timeframes such as the daily or weekly timeframe that market structure has been broken.
The moves within this piece of price action could be traded within our pattern play and SMC strategy and we’ll touch upon how later on in the course.
What you may find is that moves within the minor structure will be shorter term positions whereas the moves that occur once these major structure points have been broken could be held for a longer period
It is always a good idea to have an understanding of where we are in terms of market sequence and also market structure.
We recommend spending around 30 minutes to an hour drawing out these sequences and structure points repeatedly within the market. This will give you a good understanding of how this concept works on both the higher timeframes and lower timeframes.