Bullish market structure - Illustrations + ChartsRecap
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.
What is a Bullish market structure?
Like I said above, a bullish market structure is a structure that constitutes of formation of a series of higher highs and higher lows. In simple words, when the price is making new highs and higher lows, it is said to be forming a bullish market structure.
Exhibit: Bullish market structure
What is the use of identifying a Bullish market structure?
Identifying any market structure plays a crucial role in entry and exit. In the case of a bullish market structure, the previous highs are often seen as support zones where an entry can be made with an expectation of higher price movement. When the price returns to or near the previous high, it is often seen as a buying opportunity, commonly known as buying the dip”.
Exhibit: Pullback in a bullish market structure
Similarly, as soon as the price breaks the previous low and creates a new low, the trader must become cautious because a trend change may be underway or it may just consolidate before resuming the original trend or it may very well be a bear trap. If a trend change is confirmed, the trader may exit longs and look for the trades on the short sides.
So, after the formation of a new low, there are only 3 scenarios that can arise.
1. Trend reversal
2. Consolidation and continuation
3. Bear trap
Exhibit 1: Creation of a new low
Exhibit 2: Trend reversal
Exhibit 3: Consolidation and Continuation
Exhibit 4: Bear Trap
These are the only structure that can form in a bullish trend and they will occur time and again. Hence, all these concepts are valid on all time frames.
This is all you need to know about a bullish market structure. Now, open any random chart and back test the concepts. The more you practice, the better you will become. Whatever strategy you use, understanding the structure will always make you more confident in your trades.
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Disclaimer: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.
Happy learning. Cheers!
Rajat Kumar Singh (@johntradingwick)
