Market Structure

For the longest time, I never understood what market structure referred to and how exactly you would trade that as a trader, with or without experience.

Market structure is simply support and resistance on your charts including swing highs and lows. These are levels on your chart attracts the most attention. Because traders all over the world can see them! And this is where they base all of their trading positions.

In economics these are known as areas of liquidity i.e. areas where the market will be filled with orders of either buys or sells depending on sentiment. This can be bullish or bearish or neutral (ranging).

The example we are about to go through has many variables for us to focus on. When we look at market structure we try to spot psychological levels where liquidity will be filled and price will go in an intended direction based on momentum and other considerations i.e. fundamentals, technical, etc.

(Source – TradingView)

 

Now looking at this H1 chart it would be hard to determine the overall direction, however, when you look at the HTF (higher timeframe) you’re able to spot the psychological levels of GBPAUD specifically! Every currency pair is different and has its own important psychological levels.

As to how we would tackle this for a sell position as I have in the example given. The big purple rectangle is the daily psychological level that price had been trading on and bounce off from.

(Source – TradingView)

 

The easiest way to trade market stricter is to wait for pullbacks (retracements) and place your sell or buy positions (in this case, a sell position).

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20201016023132aff i?offer id=10&file id=540&aff id=24220

Step by step trading plan

Entries:

1. Wait for a confirmed lower high to form (H1).

2. Look for candlestick confirmation.

3. A little secret – wait for the 50 EMA to cross the candlesticks as more confirmation.

 

Exits:

1. You can set the exit (stop) at the next daily level and hold the trade.

2. With a trailing stop/ adjusting stops you can then be stopped out well in profits!

 

Just for extra information, there were fundamentals with the overall direction of this pair over the past few weeks.

So in closing, keep your trading simple. Look at where price is currently and work with what you see, not what you wish to see!

Happy trading!

Trade smart, not more.

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Emmanuel Maphosa

Emmanuel Maphosa

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