TRADING.

Market Structure: How To Identify And Trade Trending Market

Image Source: Freepik.com

One of the basic skills you’ll need as a trader is the ability to recognize the market structure, which is necessary for implementing efficient price action techniques in appropriate market conditions.

Because you will not trade all markets in the same manner, you must first study how they behave and how traders interact.

Market structure refers to the study of market behavior.

When you open your chart, you will be able to respond to these crucial questions if you can perfect this skill.

What’s everyone doing now? Who controls the market, buyers or sellers?

When should you enter or exit the market, and when should you stay away?

This post will teach you how to identify and trade trending markets.

Trending markets

The trending markets have a regular pattern of higher highs and higher lows in an up trending market and lower highs and lower lows in a down trending market.

Here’s an illustration:

Image Source: Candlestick Trading Bible

As seen in the above example, the market is uptrend since it creates successive higher highs and higher lows.

Observing price movement will give you a solid idea of the market trend; you don’t need indicators to tell whether the market is bullish or bearish.

Take a look at another example of a market that is on a downtrend.

Image Source: Candlestick Trading Bible

In the second example, the market is bearish; as shown, there have been numerous lower highs and lower lows, indicating a downtrend.

Trending markets are simple to spot; observe the market rather than attempting to complicate your analysis.

An uptrend market is making a series of higher highs and higher lows; on the other hand, a downtrend market is making a series of lower highs and lower lows.

Use larger time frames, such as the 4H, daily, or weekly, to evaluate whether a market is trending or not.

Avoid analyzing the market structure in short time frames.

How To Trade Trending Markets:

It will be simple for you to trade a trending market if you can recognize it.

If the market is bullish, you will search for a buying opportunity since you must follow the trend, and if the market is bearish, you will search for a selling opportunity.

But when is the best time to enter a trending market?

The impulsive and retracement moves are crucial movements in a trending market.

Look at the example below to grab what I mean.

Image Source: Candlestick Trading Bible

You can see that the market was creating higher highs and higher lows, which implies a bullish market.

If you witness this type of market, you should consider buying.

However, you can also see that the market was making two distinct movements.

The first is an impulsive move, and the second is a retracement move.

Professional traders understand the psychology behind trending markets; they always buy at the beginning of an impulsive move and sell at the end.

The market behaves impulsively in the trend’s direction before retracing and impulsively again.

Knowing how trending markets move will help you remember that the best time to buy is at the beginning of an impulsive move.

Traders who buy an uptrend market at the beginning of a retracement move get caught and left baffled as to why the market hit its stop loss before moving in the direction they had predicted.

See an example of a bearish trend.

Image Source: Candlestick Trading Bible

From the example above, which is a downtrend market, the ideal trading choice is to sell the market at the beginning of the impulsive move.

If you attempt to sell during the retracement move, you will be trapped by experienced traders and lose your trade.

Conclusion:

You can identify markets in an uptrend or downtrend now that you know the difference between an impulsive and retracement move.

Knowing this is crucial for you as a price action trader.

However, your question should be, “how do you spot the beginning of an impulsive move so you can enter the market with skilled traders and avoid getting trapped in a retracement move?”

You need to learn how to draw support and resistance levels if you want to predict the beginning of an impulsive move in a trending market.

I will discuss how to draw the support and resistance levels on your charts and what they are in my subsequent article.

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Codex Codex
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