Market Structure Mapping

Overview

This lecture explains how to use a mechanical system to map market structure for trading, aiming to enhance clarity, consistency, and results.

Importance of Market Structure

• Mapping market structure mechanically simplifies trading and boosts strike rate and confidence.
• Consistent structure analysis improves reward-to-risk ratios and trade management.
• All trading strategies benefit from understanding proper market structure.

Market Structure Basics

• A bullish market is defined by a series of higher highs (HH) and higher lows (HL).
• Break of Structure (BOS) occurs when the price forms a new higher high or lower low.
• Always identify swing highs (the highest point causing the next low) and swing lows (the lowest point causing the next high).
• Internal structure refers to movements within current swing high and swing low; only a BOS changes the swing structure.

Swing Highs, Swing Lows, and Internal Structure

• Swing low: lowest point that causes the next high; swing high: highest point that causes the next low.
• Internal structure does not override the main swing trend until a BOS occurs.
• Focusing only on small sections can lead to trading against the main trend.

Strong and Weak Highs/Lows

• A strong low/high successfully creates a new high/low; a weak high/low fails its job.
• In a bullish market, trade from strong lows targeting weak highs.
• In a bearish market, trade from strong highs targeting weak lows.
• Expect a pullback after every BOS on that timeframe.

Trend Changes and Confirmation

• Trend change starts with a BOS forming a lower low; some prefer confirmation with both a lower low and lower high.
• Trend changes are not always reliable; sometimes liquidity grabs create false signals.
• Use strong highs/lows to plan protective stops and trade targets after a confirmed trend change.

Change of Character (CHoCH)

• CHoCH: internal structure shifts from one trend to another (e.g., first lower low in an uptrend).
• Helps anticipate when pullbacks begin and end, aligning internal and swing structure for trade timing.
• CHoCH is not infallible and should be paired with other confirmations.

Mapping Structure on Candlestick Charts

• Use candle wicks to mark swing highs/lows.
• Type 1: Confirm swing BOS with a candle close beyond the wick (conservative).
• Type 2: Count any wick break as BOS for internal structure/CHoCH (aggressive).
• Use Type 1 for swing structure and Type 2 for internal changes of character.

Practical Application to Charts

• Identify BOS and mark current swing range before every trade.
• Use changes of character to time entries for pullbacks and continuations.
• Match internal structure to the swing structure for higher probability trades.
• Continuously update swing highs/lows and adjust as new BOS or CHoCH occurs.

Key Terms & Definitions

• Market Structure — The arrangement of swing highs and lows that defines the current trend.
• Break of Structure (BOS) — When price exceeds a previous swing high/low, confirming a new trend leg.
• Swing High/Low — The extreme points causing the next significant move in the opposite direction.
• Internal Structure — Minor highs/lows between swing points, not defining main trend.
• Strong/Weak High/Low — Strong if it creates a new move; weak if it fails.
• Change of Character (CHoCH) — First sign internal trend has shifted direction within the current swing.
• Liquidity Grab — Temporary price movement intended to trigger orders before resuming the main trend.

Action Items / Next Steps

• Download and review the provided PDF with chart examples.
• Practice mapping swing highs/lows and BOS on live or historical charts.
• Watch for CHoCH and practice identifying strong/weak highs/lows for trade planning.
• Prepare to study multi-timeframe analysis and further refinements in future lessons.