Market Structure @EmperorBTC
1. Vocabulary
HH = higher high
HL = higher low
LL = lower low
LH = lower high
BOS = Break of Structure
MS = Market Structure
CHoCH = Change of Character (in the market)
2. Market structure (MS)
Market structure defines the structure that the current market is trading in. It is what tells you
whether the market is trending or not.
2.1 Bullish MS
A bullish MS is identified when the
price makes a series of higher
highs
HH and higher lows HL.
Every time the price takes out a
high
to form a higher high, we get what
is
called a break of structure BOS or
MSB (Market Structure Break).
2.2 Bearish MS
A bearish MS is identified
when the price makes a
series of lower lows
LL and lower highs LH.
Every time the price takes
out a low to form a lower
low, we get a
break of structure BOS.
2.3 Why is MS so relevant in trading?
the trend is your friend
If you can use the market structure to identify the trend, more often than not, the price will
continue in the same direction.
This might seem contradictory at first to my usual “trade the range” motto but it is essential to use
Higher Time Frame MS to guide how you form a bias while trading a Lower Time Frame range.
3. How to use MS
Market structure can help you define if-then scenarios. the ITTT model (If This, Then That).
3.1 Deep swings
which swing points should I use?
I suggest you look for deep swing highs and lows on higher timeframes (never lower)
We define a deep swing high as
the highest point that causes
the swing low and a deep swing
low as the lowest point that
causes a swing high
➢ Figure 5 above is an example of the last
deep swing high on a
1D BTC chart.
The price was previously in a continuous
uptrend,making higher highs and higher lows,
until it reached the high marked with a green
tick.
The price proceeded to fail to break
that high and ended up moving below the low
that formed that high. Thus, you have a BOS.
➢ Figure 6 is a 1D BTC chart; notice how the
price pulls back after
the first HH, and after a short downtick was hit;
the price
started going back up, taking out the previous
higher high, with
a bullish
➢ green candle closing above it (BOS) and
reaching out for a new
higher high.
3.2 Pullbacks
Note that after every BOS we expect a
pullback on that same timeframe. And this is
where market structure comes in handy.
If a BOS occurs then look for an opportunity
to long/short on a pullback. In other words,
never think of buying right after a BOS; wait
for the pullback.
Studying my SFP (Swing Failure Pattern)
tutorial is also advisable to better grasp why
it is not wise not to trade
breakouts without context.
The following example in figure 8 illustrates an actionable trading setup based entirely on market
structure.
Price is in an uptrend making higher highs and higher lows. Then bullish continuation failed
(failure to make a higher high), which led to a break of market structure (BOS).
The formation of a lower low confirms a bearish trend change, our entry would be on a pullback.
We put our stop loss above the last lower high and target previous swing lows.
Please utilize the levels tutorial to grasp better how we identified the entry using a critical level.
3.3 Change of character CHoCH
The next concept is a tool that you can use alongside the break of market structure (BOS) in
order to anticipate when a run may be finished and a pullback may be starting (Bearish CHoCH),
and when a pullback has finished and a run may be beginning (Bullish CHoCH).
The figure below will give you an idea of the whole setup, using BOS
and CHoCH combined with the market structure.
I recommend you look at CHoCH as the first sign of trend change; it doesn’t have to be a deep
swing structure; it can be in the minor movements in between; while the BOS is a trend
continuation where we look for deep swing highs and lows to be taking out.
Note: CHoCH is not a guarantee, it can give false signals, use it in confluence with other tools.
➢ Figure 10 is an excellent example of a trade I took on the BTC daily chart; we first see a
CHoCH after a long uptrend, confirmed by a BOS.
In this example, we didn’t get the bestlooking pullback; the market was in a sell-off mode.
Traders who are a bit more aggressive might enter on the first CHoCH.
If you are a beginner do not use CHoCH as an entry signal, wait for a deep swing low (LL)
confirmation then enter on a pullback. You can also use other tools as confluence.
4. Trade Setups
4.1 Example1: Long setup
➢ figure 11 is an example of consecutive longs taken on a 1D BTC chart. After we defined the
first HH on a high timeframe, we waitfor a pullback to enter.
➢ The first bearish CHoCH signals that the bullish swing run might be over and a pullback is
starting.
➢ The second CHoCH breach is a bullish sign indicating that thepullback might end and a swing
run might start.
➢ The same strategy is used for the rest of the trades.
Note: Market structure appears on all timeframes, but more often than not we can get a bearish
structure on lower timeframes while the overall MS on higher timeframes is bullish. The key is to
look for signs of pullbacks (or CHoCH) on the lower timeframes to get with general MS direction
on the higher timeframe.
4.2 Example2: Short setup
➢ Figure 12 is an example of a short setup on the 1D BTC chart.
➢ The first bearish CHoCH helps us identify when the bullish upswing starts to weaken. Once
the price breaks the previous HL, the trend change is now confirmed.
➢ Now we wait for a pullback and a LH to form.
➢ Second bearish CHoCH is indicative of the end of the pullback; more aggressive traders enter
shorts after it.
➢ For a beginner, wait for a double BOS (Break of HL and LL) to confirm trend change and
target previous swing levels.
6. Conclusion
➢ Higher Time Frame market structure can be used to form a bias. Then trade the Lower Time
Frame range to trade.
➢ Understand what BOS is and when it occurs. Use Change of Character for entries before
Break of Structure takes place.
Explained in the various examples.
➢ Market Structure should act as confluence in all your trades.
Use multiple tutorial concepts as confluence for entries.
➢ Market Structure understanding is the basic requirement for all trading. If you don’t have a firm
grasp on this concept, it will be difficult to create your own trading system
Reference:
A L Brooks, Bob Volman, Trader Dante, Laurentiu Damir.
