Foundations of Trading Part 2: : Market Structure (swings)

Market Structure is the language of price. There are various types of Market Structures but today we are just looking at basic Swing low and Swing high structures. These are a foundation that encompass all other structures anyway.  Although swings have been around for hundreds of years and seem pretty basic, you can gain a deep understanding of all market behavior if you put in the time.

Whether your drawing with Median Lines or using some other method, an understanding of relevant swing structures will have you measuring with purpose rather than guessing

Here is some of the information that Swing structures offer:

  • Gives objective way to read the flow or trend of a market in any time frame. Seperates fact from your opinion.
  • They define where buyers/sellers are willing to step in or not step in.
  • A reference point or framework from which to measure.
  • Shows you the rhythm of a market and when that rhythm changes.
  • Can be used to manage risk.

 

Now  lets define a swing (the attached charts will diagram it out for you).  If you have your own definition,  use it but stay consistent.

  • Price making a new high confirms a swing low.
  • Price making a new low confirms a swing high.

 

Here are a few guidelines for practicing with swings:

  • Don’t rule the thing to death. Its not a math formula, system model, or setup.
  • I basically look for 2 swings to be taken out the other way to confirm a change in the trend. Don't be offended if flow changes, change with it. Remember that this is not a system or setup.
  • You want new lows or highs to be decisive before defining a swing, not just a poke of a couple ticks. You want to see the buyers or sellers be unwilling to hold the area..
  • Group swings that are relative in size. Relative, meaning they relate to each other, have relationship to each other. I group them basically as major and minor.  

 

I arranged some instructional charts in a slide show that will automaticly run through the charts. Just click on the chart to pop it out larger. The last chart is a current 45 minute EUR/USD. You will need plenty of practice on your own to begin to understand the essence of this Market Structure. 

 

Shane

 

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