Price structure is one of the most important aspects of learning to day trade because it gives you clues to find the best opportunities to profit each day.
The term ‘structure’ refers to how the market has been ‘put together’. Is the market bullish? Bearish? Sideways? What does the market as a whole look like, and what does the ‘structure’ of the market tell us?
The first step to defining the price structure of the market is to draw trend lines and look for three simple structures:
1. Price Wedge
2. Price Channel
3. Sideways Market
Once you have searched for these most common structures, then we want to look for more details:
1. Double-Tops & Bottoms
2. Zig-Zags
3. Breaks of the Channels or wedges
Once I have my price structures, then I can use these price structures to tell me where the highest percentage trading opportunities will be that day, and when you use them correctly, these are VERY accurate.
For example, I know that when I see a bear price channel structure that the highest percentage trades will be short. For that particular structure I can eliminate the LONG side from my trading as the higher RISK side of the market while I have a price structure that is a bear price channel.
Furthermore, if the bear price channel is our price structure I also know exactly how to trade this market as well. I know that with new lower-lows I want to sell a retracement rather than selling at the lows. I also know that if price rises higher, I will be looking for price reversal patterns to sell at the highs of the range or at major resistance.
As you can see, price structures are easy to find if you know what to look for, and when you find the price structure, it’s easy to know EXACTLY what you need to do in order to get into the best trades available for that day.
I look forward to teaching you more about price structures in real-time trading with me as a member of schooloftrade.com!
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Hey JJ. I really love your top down analysis here and want to incorporate it into my Forex pair trading strategy. What do you think? Would it be a good addition for me to identify potiential high percentage setup?
ReplyDeleteThanks as always,
Randal
Hi Randal, this trading method works on everything, including FOREX. I would love to see how you apply it to some of the FX Pairs, so email them to me thanks!
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