Market Structure
Market Structure in my opinion is the most important factor when determining what
side of the market to be on, I am sure being in the FMG group you have noticed I
refer to market structure quite a lot so this segment is to clarify exactly what I mean
by market structure and how it is important and also how to use this understanding to
make consistent profits.
Market structure can be simplified by two types;
1- Bullish Market Structure
2- Bearish Market Structure
Bullish or bearish market structure both have distinct characteristic to define
themselves,
Bullish market structure:
- Higher Highs and Higher Lows, Resistance Becomes Support
Bearish market structure:
-Lower Highs and Lower Lows, Support Becomes Resistance
When drawing swing highs and lows always go for the most obvious ones or the ones
that with a naked eye you can see suit the overall direction of the market not small
pullbacks for swing points you want substantial moves away relevant to the timeframe
your looking at.
These characteristics reveal what type of market we are in via it be a bullish or a
bearish market and once we know what type of market we are in we now know what
side of the market to be on when placing a trade.
Different timeframes have different market structure but from my experience it is best
to go with the higher timeframes market structure because that is were the big
institution and banks take trades based of.
Personally I pay most attention to the monthly and weekly for direction and daily for
market structure as that’s were you will be most likely to get trade setups that you can
compound and also that you can zoom into to get a few intraday trades aswell, below
I will show you examples of bullish and bearish market structure and examples of
support becoming resistance or resistance becoming support.
EURUSD- Bullish Market Structure
In this example above of EURUSD Daily timeframe I have highlighted all of the clear
swing points that make up the overall market structure, from this you can see how the
trend started from the swing low to the swing high and then formed a higher low this
indicates were are in a bullish trend, now we know what side of the market we are on
we look for price to continue to make bullish market structure.
In the form of higher highs and higher lows as shown in the example above the higher
highs that get formed make up the resistance which then becomes the support for
price once its broken, each higher low is a opportunity to enter a long position and get
on the bullish train price will remain bullish as long as the market structure has not
been violated, meaning as long as price does not go below the previous higher low we
are still in a bullish market so longs are preferred to shorts so when we scale in into
intraday timeframes like 4 hour down to 15min we know what way the trend is going
so we take setups in alignment with the higher timeframes to increase the probability
of the trade, which is why I don’t advise trading against the trend its better to go with
it and less risky.
DXY (Dollar Index) - Bearish Market Structure
In this example above of DXY Daily timeframe I have highlighted all of the clear
swing points that make up the overall market structure, from this you can see how the
trend started from the swing high to the swing low and then formed a lower high this
indicates were are in a bearish trend, now we know what side of the market we are on
we look for price to continue to make bearish market structure.
In the form of lower highs and lower lows as shown in the example above the lower
lows that get formed make up the support which then becomes the resistance for price
once its broken, each lower high is a opportunity to enter a short position and get on
the bearish train price will remain bearish as long as the market structure has not been
violated, meaning as long as price does not go above the previous lower high we are
still in a bearish market so shorts are preferred to longs so when we scale in into
intraday timeframes like 4 hour down to 15min we know what way the trend is going
so we take setups in alignment with the higher timeframes to increase the probability
of the trade, which is why I don’t advise trading against the trend its better to go with
it and less risky.