Market Structure
Last updated
Last updated
There are 2 phases when it comes to market structure:
Before starting with the lesson, keep this in mind:
Always pay attention towards the major swings not the minor!!!
bullish trending market - higher high, higher low, higher high, higher low
bearish trending market - lower low, lower high, lower low, lower high
a range is the area between the latest high and the latest low. A new range is formed when structure is broken.
in this pic, the range is continuously broken and made new.
So , what is a structure break? Since a new range is formed every time structure breaks, we must understand what it is.
a structure break is when a swing high or low is broken. The structure barrier would be the highest/lowest wick point and it must be broken by a body close. The direction that price breaks is the direction that price wants to go.
What a structure break IS:
It IS a structure break when the highest/lowest wick is broken by a CLOSE.
What a structure break is NOT:
A structure break is NOT when the highest/lowest wick is broken by a wick.
when the price rejects the range's high or lows and fails to close above or below the range even though the wick broke the range... that forms external liquidity.
A Failed to Close (FTC) is like structure break except that the price doesn’t close above/below the range’s high/low. When an FTC happens, it attracts price to break the range’s high/low which causes a structure break. It’s like a magnet for price because there are a lot of stoplosses resting at the range.
The big players want to take out the stoplosses to make their money. So, they make the price break structure (i.e. they make a structure break happen).
liquidity is generated via wick break but failure to close.
liquidity acts like a magnet. liquidity rests where the swing highs/lows are. Since it is a magnet, the price tries to go there by forming an FTC and then later a structure break.
This is the last topic to cover in the expanding (trending) market structure. A reversal is when price breaks out of the range to the direction price is likely to go to.
Let me explain it with an example:
To the left side of the chart, price was in an uptrend. It was forming higher highs and higher lows.
Then, in the middle of the chart, price broke the range. It made a structure break to the downside.
Then price went down.
another example:
There was a structure break to the upside which resulted in a new uptrend (i.e. reversal).
Price is fractal in nature. What does that mean?
On a higher timeframe (let’s say 1H), we are seeing highs and lows form. On a lower timeframe, (let’s say 5min) we are seeing different microstructures form.
Consolidation is when the market operates in levels of Premium & Discount. Example:
Price failed to break outside of the latest range THRICE. That is consolidation.
Premium levels are the upper 25% of the range. Discount levels are the bottom 25% of a range. Price will bounce off of these 2 extremes until it accumulates enough orders to break into a direction.
We can see here that price kept bouncing off these 2 levels before finally breaking into the downside.
you can confirm that price has truly going in a new direction by looking for a structure break.
Example:
Price is stuck between these 2 levels/zones
Wyckoff in a Consolidation (consolidating market)
This is the Wyckoff cycle in a distribution phase
This is Wyckoff in an accumulation phase
Wyckoff in an Expansion (trending market)
In a trending market, there are mini-Wyckoff cycles happening. We can see in this picture that in this trending market, there were small Wyckoff schematics. Each schematic had a climax, test, purge, RTO etc. To know more about Wyckoff go here.
To make this simpler, it has been broken down into buy/sell models.
in the image below, the buy models (green ones) are mini bullish Wyckoff schematics and the sell models (red ones) are mini bearish Wyckoff schematics. We draw these models within ranges.
