‘Market structure,’ a popular jargon in trading circles, may sound puzzling to newbies. Dive into this article today for its definition, types, & significance.
Table of Contents
1. Introduction
‘Market structure,’ despite its frequent use in every trading circle, may sound puzzling for newbies. It defines the contemporary market conditions in technical analysis. Hence, understanding its ins and outs is highly essential for impressive results.
This concise article explores the definition, types, features, and applications of market structure in trading. Readers will also enjoy exclusive access to an outstanding technical tool predicated on its principles.
2. Overview of the Market Structure in Technical Analysis
In technical analysis, market structures refer to the arrangement or organization of an asset’s price at any given time. They enable traders to interpret past and current conditions, from appearance to performance.
Below are a few reasons for understanding them:
- Better interpretation of asset prices based on current and previous actions
- Improved communication of ideas among technical analysts
- Increased insights for enhanced market forecasts
- Awareness of the most favorable/unfavorable periods to trade/avoid the markets
- Adaptation to various conditions for improved performance
Analyzing these structures typically involves identifying the underlying trend, support and resistance levels, chart & candlestick patterns, and trendlines.
Based on the results of such analysis, experts typically classify their findings in three ways:
2.1 Bullish Market Structure
A bullish structure features ascending price movement on the charts for a sustained period. The market forms higher swing highs and lows, indicating increasing strong investor confidence.
It develops new support levels as older ones become stronger during active hours. On the contrary, prices also break old resistance zones with momentum.
Chart and candlestick patterns in this structure typically back bullishness throughout the period.
2.2 Bearish Market Structure
The bearish structure is the reverse of the bullish structure. It features falling prices over time, breaking swing lows due to the increasing selling pressure, and decreasing investor confidence.
The resistance levels here are much more effective than the support zones (that prices break continuously).
Similarly, pattern trading in the bearish structure favors downtrends provided the structure remains unbroken.
2.3 Sideways Market Structure
In a sideways market, assets remain in ranging conditions. New swing highs form after new swing lows continuously, forcing a horizontal appearance on the charts.
Unlike bullish or bearish structures, the market breaks both support and resistance levels as often as possible while consolidating.
It is arguably the most unfavorable period for trading.
3. Understanding Market Structure Breaks
A financial market is always definable structure-wise at any time. As discussed, it may be bullish, bearish, or ranging.
When any of them approaches its terminus, a market structure break (or Break Of Structure) occurs, which is usually a transition to another framework. It is a violation of an established organization in the charts.
Break Of Structure (BOS) typically begins with a support or resistance level violation, depending on the trend.
For instance, a bullish structure featuring higher candlestick highs and violations of resistance levels will last for as long as fundamental factors permit. A break of this structure will be the case when the price falls below a significant swing low.
Likewise, a break of a bearish structure that features descending prices will occur when the price moves above a significant resistance level (usually a swing high).
Today, traders employ more technical and fundamental parameters to confirm (or refute) potential structure breaks.
Understanding and anticipating the BOS is essential for unlocking new opportunities, improving risk management techniques, or identifying the latest support/resistance levels.
4. Beating the Odds with Market Structure PRO for TradingView
Learning how the market structure works is one thing; profiting off it is another; many traders who make it to the former group struggle to be among the latter.
Fortunately, Indicator Vault has developed a powerful solution – The Market Structure PRO for TradingView. The technical indicator reveals the most elusive structure breaks with reliable theories, including order blocks.
Here are a few benefits it offers every user:
- Awareness of the most influential market structure breaks
- Ability to leverage bullish or bearish reversal opportunities ASAP
- Knowledge of the best risk management practices, including where to place stop loss and take profit orders
- Freedom to explore any market or timeframe desired
- Guarantee of market participation when desired, thanks to the timely TradingView alerts
Doubt these? Click here to confirm many more perks the tool offers over traditional options.
5. Conclusion
Market structure refers to the technical organization of an asset in the charts at any time. It can be bullish, bearish, or ranging in nature.
A Break Of Structure (BOS) occurs as a transition from one structure to another, and Indicator Vault’s Market Structure Pro is the best and most recommended tool to identify it.
Please share this article among enthusiastic traders for deeper insights into this topic, and remember to leave any queries, feedback, or suggestions in the Comment Section for engaging discussions.
