Market Structure is the big picture and a critical component to identify to maintain your Edge. I like to make this the introduction to newer traders because it's essential to see and understand the finished product before breaking apart the constructing elements.
What is Market Structure?
First, here is the simple answer.
A bullish market structure is a series of higher highs and higher lows.
A bearish market structure is a series of lower lows and lower highs.
Here's a quick picture of the simple answer.
Next, here is the complex answer.
If you've been around to hear me chat about technical analysis, you've probably heard me say three market features are the most important things to learn. These are the legos, the building blocks of the market.
Understanding these three elements can, more often than not, keep you on the right side of the markets even if you don't have some fancy trade strategy. You can (and should) bring them to any trading strategy. Taking trades in line with the trend, with support to back you up, and increasing momentum in your favor will increase the likelihood of profitability in most trade setups.
How can Market Structure help you define support and resistance?
As the market makes the rhythmic moves up and down, it creates turning points. The price where the turn occurs is when one side of market participants overpowers the other. In the case of higher highs and higher lows, as prices fall and then turn up, the bullish traders and investors buy at a higher volume than sellers can absorb, and prices rally higher. In the case of lower lows and lower highs, as prices rise and then turn down, the bearish traders and investors sell at a higher volume than buyers can absorb, and prices fall lower. The price at the turning points created is an expression of value for one side of the market. Often if a price is a value buy or value sell once, that may remain true when reencountered.