Forex Market Price Action and Market Structure Study Guide

Chapter 1: The Basics

• 1.1 Expansion and Retracement
  • Expansion ($E$): Occurs when there is an impulsive price movement towards a specific direction.
  • Retracement ($R$): Is the corrective price movement that follows an impulsive movement.
  • Uptrend Structure: Characterized by alternating cycles of upward expansion ($E$) and downward retracement ($R$).
  • Downtrend Structure: Characterized by alternating cycles of downward expansion ($E$) and upward retracement ($R$).

• 1.2 Fibonacci Retracement
  • Fibonacci retracement is used to determine the termination point of a corrective movement.
  • Price typically retracts to the $50\%$ level or into the Optimal Trade Entry (OTE) zone before the next impulsive expansion occurs.
  • OTE Levels: The key Fibonacci OTE levels are $0.62$, $0.705$, and $0.79$

• 1.3 Break in Market Structure (BMS)
  • A Break in Market Structure (BMS) occurs when price closes above a swing high or below a swing low.
  • Traders should always align trades with the direction of the Higher Time Frame (HTF) BMS.
  • Mandatory Rule: Following a BMS, always wait for a retracement prior to entering a position.

• 1.4 Range High and Range Low
  • Following a BMS, price forms a new consolidation defining a Range High (RH) and a Range Low (RL).
  • Trade strictly in the direction of the BMS.
  • Wait for price to retract to the $50\%$ level or OTE Fibonacci levels ($0.62$, $0.705$, $0.79$) within the defined Range High and Range Low.

• 1.5 Failure Swing (SMS)
  • Shift in Market Structure (SMS), or Failure Swing, occurs in an uptrend when price fails to break the last top (swing high) and breaks below the previous bottom (swing low).
  • In a bearish trend, SMS occurs when price fails to break the last bottom (swing low) and breaks above the previous top (swing high).

Chapter 2: Market Structure

• 2.0 Market Phases

  • Price exists in one of three distinct phases:
    1. Consolidation
    2. Uptrend
    3. Downtrend

• 2.1 Market Structure in Bullish Conditions

  • A bullish market is defined by Higher Highs and Higher Lows, continually breaking swing highs (BMS) while respecting swing lows.
  • A bearish market is defined by Lower Lows and Lower Highs, continually breaking swing lows (BMS) while respecting swing highs.
  • Breaking a swing high indicates that higher prices are expected, signalling trades to be taken in the direction of the structural break.
  • After a BMS occurs, wait for price to retract to $50\%$ or OTE Fibonacci levels ($0.62$, $0.705$, $0.79$) to establish Low Risk Buy (LRB) or Low Risk Sell positions.

Chapter 3: Liquidity

• 3.0 Core Liquidity Concepts

  • The FOREX market is a zero-sum game: for a trader or institution to buy or sell a currency pair, an opposite counterparty position must exist in the market.
  • Smart Money (Banks) require sellers to execute buy orders and buyers to execute sell orders.
  • Liquidity is defined by Stop Losses; areas where stop losses cluster represent high liquidity pools.
  • Smart Money manipulates price to activate existing stop losses, generating the necessary liquidity to fill large institutional orders.

• 3.1 Types of Liquidity

  • Buy Stops Liquidity (BSL): Originated by stop losses of short/sell orders.
  • Sell Stops Liquidity (SSL): Originated by stop losses of long/buy orders.

• 3.2 Buy Stops Liquidity (BSL)

  • BSL rests above swing highs and key resistance levels.
  • When BSL is taken, market makers use the buy stops to place institutional sell orders, causing the market to reverse to the downside.
  • Key Levels for BSL:
    • Previous Month High (PMH)
    • Previous Week High (PWH)
    • Previous Day High (PDH)
    • High Of Day (HOD)
    • Old High (Swing High)
    • Equal Highs (Retail Resistance)

• 3.3 Sell Stops Liquidity (SSL)
  • SSL rests below swing lows and key support levels.
  • When SSL is taken, market makers use the sell stops to place institutional buy orders, causing the market to reverse to the upside.
  • Key Levels for SSL:
    • Previous Month Low (PML)
    • Previous Week Low (PWL)
    • Previous Day Low (PDL)
    • Low Of Day (LOD)
    • Old Low (Swing Low)
    • Equal Lows (Retail Support)

• 3.4 Stop Hunt (SH) and News Events
  • A Stop Hunt (SH) is a deliberate price move designed to neutralize liquidity (trigger stop loss orders).
  • SH manifests as a false breakout above or below a level containing liquidity.
  • Market Makers frequently utilize High Impact News Events to execute Stop Hunts and sweep market liquidity.

Chapter 4: Order Blocks

• 4.0 Order Block Definitions

  • Order Blocks (OB) are specific candles where Market Makers (Banks) have entered large institutional positions.
  • True Order Blocks hold price upon retest and are not violated.

• 4.1 Bullish Order Block

  • The Bullish Order Block is the last bearish candle prior to a bullish movement that breaks market structure higher (BMS).
  • Represents a high probability zone to hold price when retested.
  • Trade Execution: Buy Limit at the top/open of the Bullish OB, with Stop Loss (SL) positioned directly below the OB low.

• 4.2 Bearish Order Block
  • The Bearish Order Block is the last bullish candle prior to a bearish movement that breaks market structure lower (BMS).
  • Represents a high probability zone to hold price when retested.
  • Trade Execution: Sell Limit at the bottom/open of the Bearish OB, with Stop Loss (SL) positioned directly above the OB high.

Chapter 5: Daily Range Price Action

• 5.0 Daily Range Components

  • The Daily Range is defined by four core reference points ($O L H C$):
    • $O$: Open Price
    • $L$: Low Of Day
    • $H$: High Of Day
    • $C$: Close Price
  • Bullish Day Structure: Open ($O$) near bottom, Low Of Day ($L$) forms early, expansion upward to High Of Day ($H$), Close ($C$) near top.
  • Bearish Day Structure: Open ($O$) near top, High Of Day ($H$) forms early, expansion downward to Low Of Day ($L$), Close ($C$) near bottom.

• 5.1 Asian Session

  • Characterized by tight consolidation spanning $20\text{--}40\,\text{pips}$ due to reduced market liquidity.
  • Session Window: $02:00\text{--}08:00\,\text{UTC}+2$
  • Establishes the Asian Range High and Asian Range Low.

• 5.2 London Session
  • Characterized by establishing either the High Of Day (HOD) or Low Of Day (LOD).
  • Functions as a manipulation move driving price opposite to the true daily trend direction.
  • Focus Window: First $2\text{--}3\,\text{hours}$ of the session, specifically $09:00\text{--}11:00/12:00\,\text{UTC}+2$

• 5.3 New York Session
  • Characterized by producing a retracement after the London Session establishes the High/Low of the day; can occasionally set the absolute High or Low Of Day.
  • Focus Window: First $2\text{--}3\,\text{hours}$ of the session, specifically $14:00\text{--}16:00/17:00\,\text{UTC}+2$

• 5.4 Accumulation, Manipulation, and Distribution (AMD)
  • Accumulation ($A$): Period where institutional positions are built, typically occurring during the Asian session consolidation.
  • Manipulation ($M$): Occurs at London Open or New York Open. Consists of driving price past the Asian range boundaries or open price to trigger stop losses and trap traders.
  • Distribution ($D$): Phase where Market Makers liquidate/exit their positions as price expands rapidly in the true intraday direction.
  • Order Liquidity Locations:
    • Below Asian Session / Open Price = Sell Stops Liquidity (SSL) available for institutional buying.
    • Above Asian Session / Open Price = Buy Stops Liquidity (BSL) available for institutional selling.

Chapter 6: Powerful Setups

• 6.1 Turtle Soup Setup
  • Turtle Soup is a counter-breakout entry model targeting liquidity neutralization (stop hunts).
  • Execution Rules: Price sweeps $5\text{--}20\,\text{pips}$ past a liquidity key level. Enter counter to the sweep movement with a minimum $10\,\text{pip}$ Stop Loss on Lower Time Frames (LTF).
  • Turtle Soup Short (TSS): Sweeps above BSL key levels (PDH, HOD, Old High, Equal Highs).
  • Turtle Soup Long (TSL): Sweeps below SSL key levels (PDL, LOD, Old Low, Equal Lows).

• 6.2 SH + BMS + RTO Setup
  • Sequence:
    1. Stop Hunt (SH): Price sweeps past liquidity level to fill institutional orders.
    2. Break in Market Structure (BMS): Price breaks structure in the opposite direction, confirming the SH.
    3. Return To Order Block (RTO): Price retracts to the Order Block created during the SH move.
  • Bullish Setup Execution: Buy Entry at Bullish OB, SL below SH low, 1st Target at opposing swing high/BSL.
  • Bearish Setup Execution: Sell Entry at Bearish OB, SL above SH high, 1st Target at opposing swing low/SSL.

• 6.3 SMS + BMS + RTO Setup
  • Sequence:
    1. Failure Swing (SMS): Price fails to break the previous extreme high/low, signaling trend exhaustion.
    2. Break in Market Structure (BMS): Price breaks structural swing level in the new direction.
    3. Return To Order Block (RTO): Price retracts to the Order Block for trade entry.
  • Bullish Execution: Buy at RTO, SL below SMS low.
  • Bearish Execution: Sell at RTO, SL above SMS high.

• 6.4 AMD Setups Execution
  • During the Distribution phase, look to execute entries using:
    • Simple RTO
    • SH + BMS + RTO
    • SMS + BMS + RTO

Chapter 7: Putting Everything Together

• 7.1 Confluence Factors

  • A minimum of two confluence factors is required to execute a trade entry.
  • Key Confluence Factors:
    • Higher Time Frame (HTF) Analysis
    • Trade timing during London Open
    • Trade timing during New York Open
    • Refining HTF key levels into Lower Time Frame (LTF) entries
    • Combining multiple entry setups
    • Alignment with High Impact News Events

• 7.2 HTF Analysis to LTF Entry Framework

  • HTF Key Levels: HTF Order Blocks, HTF Liquidity Pools, HTF Market Structure.
  • Timeframe Matrix:
    • Swing Trading: HTF (Weekly, Daily, H4) $\rightarrow$ LTF Entries (H1, M30, M15, H4).
    • Short Term Trading: HTF (Daily, H4, H1) $\rightarrow$ LTF Entries (M30, M15, H1).
    • Day Trades and Scalps: HTF (H4, H1, M30) $\rightarrow$ LTF Entries (M15, M5, M1, M30).

• 7.3 Worked Examples across Trading Styles

  • Swing Trading Example (GBPUSD): Weekly HTF Setup = Turtle Soup Long sweeping Weekly SSL $\rightarrow$ 1H LTF Entry = SH + BMS + RTO.

*   **Swing Trading Example (USDCAD):** Daily HTF Setup = SH + BMS + RTO at Equal Lows SSL $\rightarrow$ 4H LTF Entry = Turtle Soup Short and SH + BMS + RTO.

*   **Short Term Trading Example (GBPUSD):** 4H HTF Setup = Simple RTO after BMS $\rightarrow$ 15m LTF Entry = SH + BMS + RTO confluent with New York Open.

*   **Day Trade Example (US100):** 5m LTF Entry = SH + BMS + RTO with RTO occurring directly during New York Open.

Chapter 8: Marked Up Charts Case Studies

• EURUSD M1 (09 Sep 2020): Previous Week Low (PWL) taken out ($\text{PWL} = \text{SH}$) forming a Turtle Soup Long, followed by a 1m SH + BMS + RTO buy entry.
• NAS100 H4 (08--10 Sep 2020): Retest of H4 Order Block after BMS lower, yielding a high-probability Short setup.
• NAS100 H1 (10 Sep 2020): Buy Stops Liquidity (BSL) raided above 1H swing high into H4 OB, producing a 1H Turtle Soup Sell confluent with H4 RTO and 1H Breaker Block (BRKR).
• GBPCHF Daily (01 Sep 2020): BSL taken above 1.22054 high via Smart Money Selling, creating a Breaker Block (BRKR) and Daily RTO sell opportunity targeting lower SSL.
• GBPCHF M15 (01 Sep 2020): Daily Stop Raid followed by 15m SMS + BMS + RTO sell setup.
• GBPUSD H4 (Oct--Nov 2020): Bullish Market Structure with repeated SH + BMS + RTO and SMS + BMS + RTO confluences yielding Low Risk Buy (LRB) entries on OTE Fibonacci retests.
• EURUSD M15 (17--18 Nov 2020): SH above previous high followed by BMS lower and RTO sell entry during London Open.
• EURUSD H4 (Sep--Nov 2020): Price respects multiple consecutive Stop Hunts (SH) before trend reversals, confirming that market structure rarely turns without sweeping liquidity.