Market Structure Shifts

Change of Character

• Character of price action: higher highs and higher lows.
• Change occurs when price starts making lower highs and lower lows.
• Break of structure (BOS) results in a change of character.

Type Three Shifts

• All type three shifts are changes of character, but not all changes of character are type threes.
• Characteristics:
  • Decisive shift in direction with volume.
  • For a sell example: take out a high, then immediately reverse and take out a low.
  • For a buy example: take out a low, then reverse and take out a high.

Key Considerations for Type Three Shifts

• Clear break of a high or low is required.
  • Ideally, price closes beyond the high or low.
  • Look for high volume candles during the shift.
• Entries are typically on the pullback.
• Stop loss placement: behind the previous high or low.
• Target: previous low time frame high or low.

Aligning Shifts with Higher Time Frame Direction

• Avoid taking trades against the higher time frame direction.
• A shift on a lower time frame may be a pullback on a higher time frame.
• Context is important due to price being fractal.

Change of Character vs. Type Three

• Type threes are generally more decisive.
• Change of character may involve a deeper pullback due to lower volume.
• Type three shifts often offer quicker, easier trades with higher win rates and better risk rewards.

Waiting for Low Time Frame to Shift with High Time Frame

• Avoid entering trades without waiting for a reaction or shift.
• Waiting for low time frame to align with high time frame provides:
  • Tighter stop loss.
  • Entry with volume.
  • Better risk-reward ratios.