The Profitable Trader Part 1: Market Structure
Without a full knowledge on market structure, you strategy is useless
Market structure is the state, condition or flow of any market; it is basically the behavior, condition, and flow of the market.
Just as a conscious Human can either be sitting, standing, walking or running, the market can be in different states at any given time; this ‘states’ gives us information about the past and current nature of that Market.
Market structure is made up of support and resistance levels, swing highs, and swing lows.
The market can basically present itself in two major forms (or structures), the market is either trending or ranging.
A trending market is a market that flows towards a particular direction; it could be trending upwards (bullish) or trending downwards (bearish).
Types of trending market
Uptrend (Bullish market)
The bullish market is characterized by making Higher Highs and Higher Lows, but this characterization is not enough, it is necessary to say that bullish markets are always breaking swing Highs and respecting swing lows.
The fact that the price has broken a swing high, indicates that price is expected to go higher so the only thing to do is to buy! Selling in a bullish market is account suicide.
Downtrend (Bearish market)
The bearish market is the opposite of the bullish market. A bearish market is characterized by making lower lows and lower highs, it can also be defined by noting that the bearish market is always breaking swing lows and respecting swing highs.
Just like the bullish market, you need to trade the bearish market according to the movement. Whenever you see the market trending downwards or in a ‘down trend’, suspend any tendency of buying in that market or else you’d be really hurt from the result.
The Trending Market
Any trending market (bullish or bearish) is made up of 3 structures:
1) Expansion
2) Retracement
3) Reversal
Reversal is the change in trend. That is the change of market structure From bullish to bearish
Or bearish to bullish
A retracement Is what most traders would call a “pull back”, is the correction movement after an impulsive movement. The market moves in the form of “Impulsive move and correction”.
An Expansion occurs when there is an impulse movement towards a direction. After every expansion, there is usually a retracement that follows.
The Ranging Market
A consolidation is a period in the market where the market ranges within a price level. In this period, the market does not create a lower low or higher high.
A consolidation usually ends up with an expansion. That is, an expansion usually occurs after a consolidation.
Shift In Market Structure
When there is an uptrend market and the price fails to break the last top (Swing High) and breaks the previous bottom (Swing Low), an SMS is considered to have occurred (vice versa for a Bearish market scenario).
Break In Market Structure
BMS occurs when the price closes above / below a swing high/low, generally, every trader should trade in the direction of the Higher Time Frame BMS.
NOTE:
After a BMS, always wait for a retracement because a retracement is sure to happen.
I always advise every trader to have a full knowledge of market structure before approaching the market with any strategy in mind to trade the market; if you trade against the market, the result will be LOSS.
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