Introduction to market structure

2023년 1월 29일

Hey everyone!👋

In this article, we'll dive into market structure, providing insightful examples to enhance your understanding of this concept.

Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!

Market structure is a basic form of understanding how markets move. It can be seen as the flow of the price between a series of swing highs and swing lows.

The market moves in trends. These trends are nothing but a combination of different structures.



The market structure allows you to be in sync with the market and avoid counter-trend trading, which enhances the probability of your setups.



There are broadly 3 types of structures:
1. Bullish (Uptrend)
2. Bearish (Downtrend)
3. Ranging (Sideways)

Illustration: Bullish market structure


Illustration: Bearish market structure


Illustration: Range market structure


📈 What is an uptrend?



✅ Characterised by a bullish market structure.
✅ Formation of higher highs followed by higher lows.
✅ For an uptrend to stay intact, it must preserve its ascending structure - higher highs must follow higher lows.
✅ Lower highs are allowed if the price goes into compression or re-accumulation.

📉 What is a downtrend?



✅ Characterised by a bearish market structure.
✅ Formation of lower highs followed by lower lows.
✅ For a downtrend to stay intact, it must preserve its descending structure - lower highs must follow lower lows.
✅ Lower highs are allowed if the price goes into compression or re-distribution.

⚡ What is a range?



✅ A range is a zone where the price finds itself bouncing between two levels.
✅ These levels are - range high and range low.
✅ The size of the range is dependent on different factors such as asset class, demand-supply, volatility, etc.

A lot of times, the structure won’t be as clear as you want it to be. Conversely, sometimes the structure will replicate the textbook. Hence, you need to be flexible in your approach.

Sometimes, trading in range-bound markets can be challenging due to the choppiness in price movements. However, when the price action is more defined, some traders may prefer to trade the range by executing breakout trades or mean reversion trades from the range high to the range low or vice versa.

It is better to combine market structure with other concepts/indicators for better results.

Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!

See you all next week. 🙂
– Team TradingView

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