In this blog, I’ll take you through a full trade breakdown. There will be nothing left out. Market structure, supply, and demand will all be covered, so you can trade it like pros do. This could be the most valuable video I’ve ever created on this channel, so make sure you stick around till the end for a free Market Structure course, consisting of nine episodes that will teach you exactly how to identify market structure the right way.
Understanding The Market Structure
Now, before I really dive into practical, so to say, I want to begin by explaining the theory behind market structure and how we approach it at Prosperity Academy. We have a specific methodology that we apply across all trades. Let’s break down the three different types of market structure.
Type 1: Swing Structure
The first kind of structure we work with is Swing Structure, and this is our benchmark for understanding market behavior. To explain this, let’s take an oversimplified example:
Swing Points: These are the outer points where we see market shifts and reversals.
Trend Development: As the price moves from lower lows to lower highs, we get a confirmation of a bearish trend.
Trend Continuation: We seek out lower lows, and lower highs, and then the market tops.
At some point, you will see the structure change of the market – it is here we observe a Change of Character (Chu). This is our first step in our break of structure model, confirming that the trend has likely changed.
Change of Character & Break of Structure
Phase 1: Change of Character (Chu):
This is where the market shifts from lower lows to higher highs. We use this as an early indication of a trend reversal.
Phase 2: Confirmation through Pullback:
We then wait for the price to pull back to a demand area and continue the trend, helping us confirm the shift.
Phase 3: Break of Structure (BoS):
Once price breaks a prior high, we confirm that indeed the market structure has changed.
This three-stage reversal model forms the basis of our trading philosophy.
Advanced Market Structure
Now when the market structure is not simple, we are required to drill deeper. Often, price action will resemble an intricate pattern that lacks clear definitions for swings – such as simple lower lows and higher highs.
Internal vs. External Structure
External Structure: The general trend (such as the swing structure).
Internal Structure: The price action in the current trend or range, where the price may display counter-trend movements.
Internal Trend Shifts
Internal Pro Trends (IP) is also to be tracked – these are Internal Counter trends, where the price progresses within the range before resuming the main trend.
This brings us to the concept of Internal Change of Character (ICoC), where price temporarily reverses within the internal structure but still respects the overall external trend.
How to Identify Swing Points in Market Structure
For determining swing points within the internal structure, we draw a box from the current high to the current low. Whatever is inside that range is an internal structure; whatever is outside that is a part of the external swing.
Multi-Dimensional Structure
We have multi-dimensional structure, where we are looking at price action at multiple time frames. This means we are now understanding the general trend and, more importantly, the finer movement of price actions at smaller intervals of time.
M15 vs. M1 Analysis:
For instance, we have the M15 chart where the market displays bearishness. In this case, we can zoom down to the M1 chart and map out the order flow on that given trend.
On the M15, the market has broken structure and would have a lower low on that chart. On the M1, you’d probably get internal structure with pullbacks and shifts, all according to the M15 trend.
The key in all this is knowing that different timescales represent various dimensions of price action, so putting them all together gives you a much sharper view of the market.
Taking the Market Structure Models to the Live Examples
We have studied the theory and models. Next, let us apply them by taking real life examples using live examples. I will delineate the precise trades we have taken from using these models. I show you how precisely these principles have been playing out into real-time markets.
Stay tuned for more detailed examples and step-by-step breakdowns.
