Market
Structure
Course
Q4 2024
STOCK MARKET EDUCATION SERIES
Market Structure
Market structure, much like the architecture of a building, lays
the foundation for the understanding of price’s current trend.
Not only does market structure provide you with a clear overview
of current market conditions and trends, but it can also help you
identify support and resistance levels. It helps you understand
the framework the market is currently trading in, and gives you a
firm signal before any other indicator can.
3 Types of Market Structure
Bullish Market Structure
Defined as a series of Higher Highs (HH) and Higher Lows (HL).
When a HL is broken, the bullish market structure ends.
Bearish Market Structure
Defined as a series of Lower Lows (LL) and Lower Highs (LH).
When a LH is broken, the bearish market structure ends.
3 Types of Market Structure
Sideways Market Structure
Defined as a serious of Equal Highs and Equal Lows, when the
either high or low is broken, we begin to create a structure with
direction.
Other Types of Market Structure
Market Structure can also be defined with Candlesticks.
Other Types of Market Structure
Price Failure
If Price action goes higher, but then fails to close above the last
high or low, this shows weakness and could be the signs of an
early reversal.
Support & Resistance
If Price action goes higher, and closes above resistance, this
could signal strength and that price will go higher.
Best Time Frame to Identify Market Structure
Market Structure appears in every time frame, but they might all
show a different trend.
The trend might be bullish on the higher time frame, but on the
short term it may be showing a downtrend as the market pulls
back as shown.
The higher time frame represents more volume and more market
participants. Therefore the higher the time frame, the more
reliable it’s trend will be. Lower time frames can be very choppy
and make market structure more difficult to spot. Keep this in
mind as you begin to master market structure, as the tool is more
powerful when every time frame aligns in the correct direction.
How To Use Market Structure
Market structure can you help you define if-then scenarios. For
example, if a structure break occurs, then I can look to get short
on a pullback, as depicted in the following picture.
Entry Patterns
Pullback or Retracements
When the market is in an up or downtrend this indicates that
price will push back and collect orders (creating a counter-
trend) before continuing the trend.
Structure Hold
This is essentially when price returns to the point from our last
example. It is a form of creating and using support and
resistance.
Entry Patterns
Continuation
This is when price stalls out during a trend, creating a “base”
before pushing higher. During the base, traders accumulate their
position in anticipation of the future rally or drop.
Conclusion
Utilizing market structure offers a distinct advantage by giving
us optimal entry and exit points using trend lines and price
targets—an invaluable asset in trading. Once you've identified
the structure begin to form you can align these with other tools
like the indicators which we recently covered. This alignment
serves as the foundation for crafting tailored trading strategies
and effective risk control measures.
Understanding the fundamentals of market structure might
seem straightforward, yet delving into the nuanced aspects can
be a journey that spans many years to truly master.
