Market structure is the trend or direction in which the chart is going.
Types of Trends
Uptrend (Bullish Market): The market is trending upwards.
Downtrend (Bearish Market): The market is trending downwards.
Uptrend
Consists of higher highs (HH) and higher lows (HL).
A new higher high is formed when the price closes above the previous high.
Downtrend
Consists of lower lows and lower highs.
Candlesticks and Structure
Structure needs at least two consecutive candle closes to be valid.
Uptrend Example
Series of higher highs and higher lows.
Downtrend Example
Series of lower lows and lower highs.
Change of Character (CHoCH) / Break of Structure (BoS)
This is when the chart has permission to change trend from downtrend to uptrend or vice versa.
Uptrend to Downtrend
The price was in an uptrend, making higher highs and higher lows.
A higher low is broken, closing below the previous low, signaling a potential downtrend.
The market then makes a lower high and a lower low, confirming the downtrend.
After a break of a new low, the price sometimes pulls back before continuing the downtrend.
Downtrend to Uptrend
The price was in a downtrend, making lower lows and lower highs.
The price breaks above a lower high, indicating a potential change of character.
The market pulls back and then pushes upward, confirming the uptrend.
Candlestick Considerations
Wicks on candlesticks are not considered valid structure.
The bodies of the candles define the structure.
On a line chart, wicks are not visible, only the closing prices (bodies) are represented.
Consolidation
The market moves sideways, without significant upward or downward movement.
The market is in a range until it breaks out either to the upside or downside.
It's often best to avoid trading during consolidation.
A breakout occurs when the price closes above the consolidation range (for an upward breakout) or below it (for a downward breakout), followed by a potential pullback and continuation.
Time Frame
Different time frames show different levels of detail in price movement.
Candlestick Representation
One-minute time frame: Each candlestick represents one minute of price action, showing more movement.
Higher time frames (e.g., 15-minute): Show less detailed movement and a broader view.
Lower time frames (e.g., 3-minute, 5-minute): Show more movement and detail compared to higher time frames.
Higher Time Frame Preference
The higher time frame trumps lower time frames.
The higher time frame provides a higher probability understanding of the overall trend.
Trading Strategy
If a higher time frame shows a break to the downside, the market is likely to pull back before continuing downward.
Day traders and scalpers can take advantage of both buy and sell opportunities, but understanding the higher time frame trend is crucial.