Market Structure Forex – 3 Winning Ways
Market structure forex is a major topic for discussion in the financial market.
Why is market structure important in forex?
First and foremost, unlike stocks and futures, the forex market is structured as a decentralized market rather than a centralized market.
When you trade the forex market, you avoid the stress of dealing with a centralized exchange (such as the New York Stock Exchange) that sets the market’s price.
How do you master market structure forex?
To master market structure forex, one must have a complete understanding of price movement.
They say price action is king!
Market structure trading strategy is a skill in which the flow and direction of the market price are determined by the price action.
In this post, we shall be discussing extensively market structure definition forex, types of forex market structure, market structure forex exchange, how to understand market structure in forex and break in market structure forex.
What is a Market Structure Forex?
The market structure analysis forex is one key area of analyzing the market and basically the only area.
This is a unique way of approaching the chart with the aim of low risk, high reward ratio.
How do you map a market structure in forex?
There are basically 3 types of market structure which are uptrend, downtrend, and ranging market.
An uptrend consists of a series of higher highs and higher lows
A downtrend also consists of a series of lower highs and lower lows
And the ranging market has an equally high and equal low market price.
For a continuation of an uptrend, new higher highs and higher lows are formed and for a continuation in the downtrend, new lower highs and lower lows are also formed.
The above is the forex market structure patterns.
The Shift in Market Structure Forex
Knowing that a trend is only healthy if it continues to go in the same direction while successfully creating new highs and lows in the market.
A shift in market structure, on the other hand, is often noticed, and a trader must be able to tell when a trend has run its course and when a new one is about to begin.
This shift in market structure is referred to as a break in market structure forex or simply a break of structure in market structure analysis forex.
A market structure break occurs when the market price moves in the opposite direction of the previous movement.
The first thing to understand is that in order for a trend to continue, new highs must be formed for an uptrend and new lows must be formed for a downtrend.
Mastering Market Structure Forex Market Structure Breakdown
When you move from a higher time frame to a lower time frame (your trading time frame) and notice a downtrend, you can easily conclude that the market price formation indicates a strong downtrend.
This top-down analysis of the time frames increases your chances of correctly predicting the market price trend, and it also helps you distinguish between a fake and a real breakout.
With the direction of the market price known, the Fibonacci retracement tool can be used to better enter and exit a trade.
Let’s say you’re trading on the 1-hour time frame and you’re in a downtrend on both the daily and higher time frames. If the price has moved up to 50% Fibonacci, you can easily profit.
At 50% Fibonacci, you can easily place a sell order at the next rejection (with the use of candlestick patterns) to the uptrend.
The break of structure will not be initiated until the last higher low in the uptrend is broken with a full-body candlestick.
The break is not confirmed until the last lower high in the downtrend is broken with a full-body candlestick.
A break in structure does not always imply a complete trend reversal, especially when it occurs in lower time frames.
Using Trendline to Master Market Structure Forex
For a break of structure forex, you need a confluence of trade ideas to execute accurate trades.
The forex market structure cheat sheet is aimed at risking little and getting a potentially high reward.
With the use of a trendline, as in the case of the above-market structure forex example taking a SELL order, with the use of the Fibonacci retracement and drawing a descending trendline on the peaks of market price
Once the price (the new highs) fails to break the descending trendline, then the downward movement continues.
Trendline will always make you understand the dominant market flow of the bulls or bears leading in the market.
Using Momentum to Master Market Structure Forex
Momentum is the king as the price is king!
When high momentum is calculated against the current trend, it is a strong indicator of a trend reversal.
Using a Fibonacci, trendline, and momentum tool instead of a technical tool like the MACD or Stochastic will give you a significant advantage for a reversal trade.
When the last high to the newly formed low of a downtrend is greater than the previous downswing, you can expect the market price to continue to fall.
Draw Tested Support and Resistance Zones
To enable the perfect entry and exit of trade orders, support and resistance zones should be drawn.
Two supports can be drawn below the current market price and two resistances can be drawn above it.
Draw support and resistance zones on the 4-hour or daily time frame when your trading time frame is 1 hour.
Your support and resistance zones will assist you in effectively managing a ranging market by allowing you to buy at support and sell at resistance.
And the most likely side for a breakout of the range is where the price stayed much longer during the range.
This article is indeed a roadmap to market structure forex strategy.
I hope you will master this strategy (market structure forex explained) to win big in the forex market
There are so many noises in the market with high-impact news but only the market structure analysis will help you make money.
Thanks for reading today.
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