How to trade market structure

You must first complete Candlestick Charts and Patterns before viewing this Lesson

So many aspiring traders seem to believe that indicators, chart overlays or complex numerical solutions are the key to consistent profits in the financial markets.

The chart above shows nothing but the pure market structure of the GBPUSD. By learning how to read it, you will have the ultimate “plug and play” solution for your trading because you will be able to read any chart of any asset on any time frame!

The benefits are enormous:
You gain confidence
You gain consistency

What is market structure?

Market structure refers to the visible evolution of market movement and places where those movements stopped. The key elements of market structure are the peaks & troughs price has made over time, by moving upwards & downwards.

As we know Price moves in trends.

• Trends move in waves.
• The impulse wave moves in the direction of the trend.
• Followed by countertrend moves termed as Corrections

But let’s define price structures, beginning with continuation:

The first up candle breaks the high of the previous candle, creating an upwards lead. The subsequent candles confirm this lead, creating continuation to the upside.

Let’s now define a lead change as the violation of a previous candle’s low (in an upwards lead) or the previous candle’s high (in a downwards lead):

In alead change, the candle breaks the previous candle’s low, creating a new high. Obviously, a new high candidate cannot be confirmed until the next candle closes.

Now that we understand the concept of new highs and lows, we can define the market structure as the current disposition of demand and supply in the form of subsequent highs and lows. From a price action point of view, we can broadly speak of a trending structure, a ranging structure or something that’s not clearly one or the other.

What’s behind market structure?

So now we have all the key building blocks in place to understand market structure:

  • Continuation
  • Swing highs & swing lows
  • Weekly & daily opening levels

These kinds of price levels or zones are usually associated with a relatively large number of transactions (from both buyers and sellers) and that makes them consistent focal points. Because these areas tend to promote more trading, these areas see even more trading volume and have a tendency to reinforce themselves. This is why areas of support and resistance usually repeat or stay in force.

Keep it simple and subtle

By clearing your charts and paying attention to market structure, you will avoid confusion and always be preparing your trades using the same angle

  • You will always know which way to be pointing
  • You will always know how to discern a retracement from a reversal
  • You will have the possibility to trade any asset, on any time frame.

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