If you are still not a profitable trader in 2024, it might be because you do not have an understanding of market structure. A full understanding of true market structure would mean that if you understand what the real behavior is, you will be on the right side of the market most of the time, and then trading becomes an issue of entries and psychology.
In this blog, I’ll share with you the five golden keys for mastering market structure, and as a bonus, I’m also going to teach you how to build a trading strategy using these concepts. It may very well be the most important video I’ve ever created!
Golden Key #1: Know Your Foundation: Basic Market Structure
Before we dive into advanced techniques, let’s set the foundation. Market structure in its simplest form consists of swing points. You will always have a low, a high, and based on this, you determine whether the market is bullish or bearish. For example:
- Bullish Market Structure: Price breaks out to the upside after reaching a swing low and high.
- Bearish Market Structure: The price breaks down to the downside after making a swing high and low.
In the bullish market structure, the price forms higher highs and higher lows. Similarly, in the bearish market structure, it forms lower lows and lower highs. The central idea here is that these highs and lows, which are termed as “swing points,” support the forecasting of market trends.
Golden Key #2: Practical Market Structure
While the basic market structure is helpful, the reality is much more complex. In the real world, price movements rarely follow this simple structure. Understanding how to interpret real market action is crucial.
Internal Structure vs. External Structure
Internal structures are smaller ranges within the larger external structure. These internal structures are often tricky and can mislead traders.
Here’s the key step: Recognize that any market fluctuation within a specific range is internal until price breaks out of that range. Only after this breakout do you establish a true bullish or bearish trend.
You must focus on identifying these ranges and recognizing when a break occurs, which becomes your potential entry point.
Golden Key #3: Our Golden Rule: Three Candle Pullbacks
One of the most important rules in market structure is recognizing a pullback. This is one of those times where you get confused between whether the market is just pulling back or if there is a trend shift.
The Golden Rule: A good pullback occurs if three consecutive candles close in the opposite direction within a price leg.
Here’s how you apply it:
- Identify the Swing Low: First and foremost, identify your swing low.
- Identify the Swing High: Identify the corresponding swing high.
- Look for Three Bearish Candles: This is a pullback when these candle closes below the former highs. This is not a pullback if you do not see three candles close below.
Applying this rule allows avoiding entering trades too early or the wrong side of the market. Mistakes such as selling short during a bullish trend and vice versa can be costly.
Golden Key #4: Premium and Discount Zones + Order Blocks (OT)
Premium and discount zones need to be understood for one to determine where the price is most likely to reverse.
- Premium Zone: Price at high level, in the premium zone, so this is a good place to find shorts.
- Discount Zone: Price at low level, in the discount zone, which can be an excellent buying area.
Besides, the Order Blocks (OT) also play a critical role. They are regions where price typically makes a reversal. When price enters an order block, it is a sign that it will probably continue in the previous trend.
If you identify these zones, you can then establish a framework for entering trades in the most probable locations, which can increase your opportunities to enter profitable trades.
Golden Key #5: Fractal Market Structure
Market structure occurs in multiple timeframes and understanding fractals, which are patterns of smaller repetition of price action, is a key to making better decisions. A fractal structure is that the movement of the market can be resolved into patterns on smaller timeframes that mirror the larger trend.
- Lower Timeframes: Smaller swings are parts of a larger trend.
- Higher Timeframes: Confirm the bigger trend and structure.
By aligning your trading decisions on multiple timeframes, you get a more holistic view of market behavior, which then helps you make better decisions.
Bonus: How to Create a Trading Strategy from Market Structure
- Set Your Timeframe: Start by deciding which timeframe you want to trade in. The 15-minute or 1-hour charts work well for short-term traders.
- Identify the Trend: Apply the golden keys principles to determine whether the market is bullish or bearish.
- Wait for Pullbacks: Wait for the three-candle pullback pattern to confirm entry points.
- Premium and Discount Zones: Only trade in the direction of the trend when the price is in the discount zone for buys and premium zone for sells.
- Fractal Confirmation: Confirm the trend on multiple timeframes before entering the trade.
Combining these strategies will allow you to start building a trading system that works.
Conclusion
Mastering market structure can set you on the path to success in 2025. If you take the time to truly understand how market structures work and implement the five golden keys I’ve shared, you’ll have a solid foundation for developing a profitable strategy.
Remember, you will not be right 100% of the time, but the correct application of rules and strategies enables you to gain more when right than losing when wrong. Start these principles today and let 2025 be the year you hit that $100,000 goal!
