Market structure is one of the most undervalued topics in trading. People don't spend enough time learning about it. In this thread, I'll try to touch on all the important aspects of market structure.
Introduction
Market structure is simple and a basic form of understanding, how the markets move. The Price Action is how the market moves based just on price, without the consideration of trends and how they may continue. But the market structure is focused mainly on the trend. The market structure is formed using swing highs and swing lows. You may have already heard about the formation of higher highs and higher lows in a bullish trend or the formation of lower highs and lower lows in a bearish trend. This is what is called as market structure.
How to draw and find market structure? Finding a market structure is an easy task. All you have to do is connect the recent swing highs and swing lows and identify how the price is moving. If the price is forming a series of higher highs and higher lows, then it is a Bullish market structure. Similarly, if the price is forming lower highs and lower lows, it is a bearish market structure. I’ll post separate threads on various market structures at a later point in time.
Types of market trend
The market trend in 3 different directions at any given time and understanding when a shift occurs based on the timeframe you watch is pivotal to successful trading. The 3 types of market trends are: 1. Bull trend 2. Bear trend 3. Sideways trend
Type of market structure
There are 5 types of market structures.
1. Bullish market structure 2. Bearish market structure 3. Ranging/sideways market structure 4. Change of trend from bullish to bearish 5. Change of trend from bearish to bullish
Exhibit 1: Bullish market structure
Exhibit 2: Bearish market structure
Exhibit 3: Ranging/sideways market structure
Don’t worry I’ll cover all these topics in separate threads. This was just an introductory thread on market structure.
Read the post a few times and you will be able to understand everything. If anyone is interested in getting a PDF version of this thread, then you can check the links under this post.
Disclaimer: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.
Rajat Kumar Singh (@johntradingwick) NSE Certified Technical & Fundamental Analyst