Break of Structure in Trading

Jul 5, 2024

Break of Structure in Trading

Introduction

  • Discussion on 'Break of Structure' in trading.
  • Recap of previous concepts: highs, lows, and trends.
  • Focus is to understand 'Break of Structure' rather than its application as a strategy.

Key Concepts Recap

Highs and Lows

  • High: Upward move followed by a downward move.
    • Take the highest point of this move.
  • Low: Downward move followed by an upward move.
    • Take the lowest point of this move.
  • Ignore consecutive up (green) or down (red) candles unless they form the highest or lowest points.

Trends

  • Uptrend: Higher highs and higher lows.
  • Downtrend: Lower highs and lower lows.

Break of Structure

Identification in Uptrend

  1. Break of Structure occurs when a lower low is made after higher highs and higher lows.
  2. Signal: A candle closes below the lowest point of the previous move.

Identification in Downtrend

  1. Break of Structure occurs when a higher high is made after lower highs and lower lows.
  2. Signal: A candle closes above the highest point of the previous move.

Examples and Demonstrations

Uptrend Example:

  1. Observe recent highs and lows.
  2. Identify when a low is closed underneath by a candle.
  3. This indicates a break of structure to the downside, leading to a potential downtrend.

Downtrend Example:

  1. Observe recent highs and lows.
  2. Identify when a high is closed over by a candle.
  3. This indicates a break of structure to the upside, leading to a potential uptrend.

Practical Charts Examples

  • Showed how to spot break of structures in both uptrends and downtrends using candlestick charts (e.g., NASDAQ).
  • Importance of waiting for candle closure to confirm the break of structure.

Final Remarks

  • Emphasized understanding and correctly identifying breaks of structure before strategizing.
  • Explained the significance of highs, lows, and trends in relation to breaking structures.
  • Urged patience and continuous learning before aiming for profitability just from identifying breaks of structure.

Note: This concept is a tool to be used in your broader trading strategy, not a standalone guide to profitability.

Full transcript