What is market structure?
Price does not move randomly and by using market structure, you can know exactly what it is doing.
The market structure basically represents price phases and if you can understand the market structure then you’ll easily be able to know how the price will move ahead.
I’m sure you have seen a price chart and you will have seen that the price never moves up or down in a straight line.
There will be times when the price might be in a particular trend, i.e. uptrend or downtrend, but it will have some counter-trend moves.
Like just try to imagine this, throw a basketball down the stairs, what will you see?
You’ll see that the ball bounces on the stairs moves up but keeps going down only. This is exactly how the price moves in the market.
In each phase, the price makes something known as swing highs and swing lows.
In an uptrend, you’ll see a series of higher highs and higher lows, while in a downtrend you will see a series of lower highs and lower lows.
In the sideways price phase, you’ll see that the price just can’t form highs or lows and as you can see in the chart above, the price was moving sideways for some time.
Now, this is exactly what market structure is. If you just open up a chart and mark the highs and lows of the price, just I’ve done in the chart above, you’ll see that the structure is very clear.
What difference does market structure make?
Market structure is a price pattern that can be used to understand the nature of the current price movement.
Say that I showed you a chart and told you to identify trade opportunities.
This would seem too plain to understand anything right. But if I could analyze the market structure and then see?
Do you see the difference now?
After identifying the market structure and tracking the price’s movement, you now know exactly when the trend has changed.
In the chart I’ve shown above, the price was in an uptrend and was making higher highs and lows, the price then started the downtrend and formed lower lows and highs.
The price will always keep moving in such a pattern and the entire structure will be broken each time the trend reverses.
So, the market structure not only tells you where exactly the market is headed but also tells you when the trend has reversed.
All of this can be used in the right way and capitalized upon. I’ll show you how to do that exactly.
How to use market structure in trading?
Well, I’m sure that by now you have a good enough idea about market structure and how it can help you in trading. Now I’ll show you how exactly you can use it in trading.
The market structure is something that helps you understand what’s going on in the market.
It can show you where exactly the market is headed, i.e. in which direction is the trend and along with this, it can provide you with one more very important piece of information, about trend reversals.
You’ll get to know when an uptrend turned into a downtrend and vice versa and you can make the most out of it right when the new trend starts.
You can use this pattern along with an already existing strategy of yours and get just the best trades.
Say that you trade support and resistance and that’s your strategy.
How would you trade when the price after bouncing off from a decent support zone twice, came back to the zone? Would you take a trade straight away?
According to me, that isn’t the right way to trade. What if the zone didn’t hold and the price breaks it? Then you’d lose the trade right.
That’s where market structure can save the day for you.
You can wait for the price to reach your zones and then you can wait for some price action to form. The price could either break it or hold it right.
Whatever it does, you then wait for a shift in momentum by looking for a market structure break or continuation, and then boom, you take the trade.
This is just one way that you can use market structure and it can also be used to ride trends.
Like in this example here. The price is in a downtrend already, how do we know that? By looking at the lower lows and highs that the price is making.
Look at where the second lower high was formed, just at the previous lower low. This gives you a perfect entry.
Stop loss at the previous swing high and you’ve got a pretty good trade at hand.
Another trend following method of using market structure would be to keep riding the trend till the price is forming higher highs and low in case of long trades and lower lows and highs in case of short trades.
As you can see, entry was taken during an uptrend while the price was forming higher highs and lows. Trade was held till the market structure was being held and just when it was broken, trade closed in good profits.
You don’t necessarily have to use these strategies only to trade market structure.
Through this blog post, I want you to understand the core of the market structure, learn how to identify it on price charts, and use it with whatever strategy you trade with.
I’m telling you, you’ll get high quality trades that will have high chances of going in your favor.
What are your thoughts on this?
Do let me know what you think about the market structure and whether you’ll use this or not.
Let me tell you one thing that this pattern of market structure won’t work all the time and you need to develop a plan for it and stick to it at all times.
Don’t forget to share this blog post with others and let them also take advantage of everything I’ve talked about in this blog post.
Feel free to reach out to me for any questions or queries in the comments section below.