LESSON #1
MECHANICAL MARKET STRUCTURE
Scroll down for notes + diagrams 👇
Market structure illustrates the overall order flow of the market and provides a mechanical framework for reading and understanding price.
When you understand and map market structure correctly, it massively increases the probability of understanding where price is more likely to go next, but also the behaviour of how price will likely move to get there.
You need to have a systematic method for mapping market structure consistently the same way every single time.
If you can be consistent in your approach to analysing the market, then you increase the probability of achieving consistent results within an uncertain market environment.
BASIC MARKET STRUCTURE
Bullish Market Structure (Up Trend) -> higher highs (HH) and higher lows (HL)
Bearish Market Structure (Down Trend) -> lower highs (LH) and lower lows (LL)
Higher lows and lower highs are not confirmed until a Break of Structure (BOS)
Swing High -> highest point that caused the swing low
Swing Low -> lowest point that caused the swing high
BOS -> break of Swing structure
After a BOS, expect a pullback on that timeframe
STRONG & WEAK HIGHS/LOWS
Strong high/lows break structure
Weak high/lows fail to break structure
Strong Lows -> lows that cause highs (HLs)
Strong Highs -> highs that cause lows (LHs)
Usually form with a sharp move away + larger candles
Big money has an interest in protecting those strong swing points
🎯 Goal = catch HLs and LH's (continuations) and target HH's and LL's (weak structure) = follow the trend!
TREND CHANGE
A trend change is when the expectational order flow (EOF) fails.
In a bullish trend, the expectation is that price will continue to make higher highs and higher lows.
In a bearish trend, the expectation is that price will continue to make lower highs and lower lows.
Bullish trend change -> is confirmed once price breaks a swing lower high to form a swing higher high (bullish BOS).
Bearish trend change -> is confirmed once price breaks a swing higher low to form a swing lower low (bearish BOS).
REAL EXAMPLE:
3 TYPES OF STRUCTURE
There are 3 types of structure:
Swing -> BOS -> candle body close
Internal -> i-BOS -> candle body close
Fractal -> CHoCH (fractal structure trend change) -> wick break
CHoCH -> signals Internal pullback starting/ending
i-BOS -> signals Swing pullback starting/ending
Internal Structure Expectation:
When the Internal structure is aligned bullish (bearish) with the bullish (bearish) Swing structure, the expectation is that the bullish (bearish) Internal trend will continue until it breaks the weak Swing high (low).
If the bullish (bearish) Internal structure fails to do this and switches bearish (bullish), then the expectation is that the new Internal trend will stay bearish (bullish) until it breaks the larger internal weak low (high).
