Smart Money Concept Forex Trading Full Course Part 01 – How to identify market structure and map structure

Identifying the market structure in forex is a convoluted undertaking, especially for novices who are just starting out in the realm of trading. Mastery of market structure is imperative to prosper in forex trading, as it enables traders to recognize potential price movements and market trends. This write-up will scrutinize how to identify market structure in forex and dispense tips on how to exploit this awareness to execute profitable trades.

Understanding Market Structure in Forex

Market structure in forex refers to the mechanism through which price movements ensue in the market. It is a graphic representation of the way that purchasers and sellers interact with each other in the market, and it can provide valuable insights into potential price movements. A comprehension of market structure is indispensable to thriving forex trading since it allows traders to identify trends and make well-informed decisions about when to enter or exit trades.

There are three market structures in forex:

Trending markets –

These markets manifest a clear direction, with price movements occurring in one direction for a prolonged period.

Ranging markets –

These markets exhibit no clear direction, with price movements transpiring within a specific range.

Reversing markets –

These markets have a clear direction, but the price movements are in the opposite direction of the trend.trend reversal mean changing trend to Up or Down

Identification of Market Structure in Forex

To recognize market structure in forex, traders must avail themselves of technical analysis tools. The most common tools used to identify market structure are:

Support and Resistance Levels – These levels are regions on the chart where the price typically ceases or reverses. They can be used to identify potential areas of support and resistance, which can help traders make well-informed decisions about when to enter or exit trades.

Moving Averages – These indicators are employed to identify trends in the market. Traders can use moving averages to detect potential areas of support and resistance and make well-informed decisions about when to enter or exit trades.

Trend Lines – These lines are drawn on the chart to link the highs or lows of price movements. They can be used to recognize potential areas of support and resistance and make well-informed decisions about when to enter or exit trades.

Map Structure

When it comes to market trading, the underlying structure holds utmost significance. A trader must be cognizant of the prevailing trend to determine the trade’s direction. Personally, I prefer to chart out the swing structure for my trades. To avoid any confusion, I stick to analyzing two-time frames for structure mapping, specifically the H4 and the 15M time frames.

Allow me to illustrate my approach to mapping the market structure using a simple diagram. Firstly, in the event of a high break, I track back to the furthest point preceding the break. Once I have identified this point, I wait for a substantial pullback relative to the break, and then mark out the high. Thereafter, I repeat these steps every time there is a break in the market structure.

Now, let’s examine a more practical diagram that takes into account the fact that markets seldom adhere to a simple 123 pattern. At times, the pullback may be more intricate, but the principles remain the same. Once you have identified the break of structure (BOS), you must track back to the furthest point preceding the break, and this will represent your low. Subsequently, when you encounter a substantial pullback relative to the break, you may mark out the high.

The same methodology applies to bearish scenarios. Instead of tracking back to the furthest point before a high break, you track back to the furthest high preceding the low break. Once you have identified this high, you await a significant pullback relative to the break down, and then mark out the low.

Another way I leverage market structure is by determining the appropriate action to take depending on which stage of the leg we are in. When we break a high or low, we should expect a pullback, and thus I search for a trade back into the BOS, which I classify as a counter-trend move. On the other hand, during a pullback, we should start seeking potential areas where the pro trend move could resume. I tend to hold pro trend moves for longer than counter-trend moves since the former are more likely to extend further.

Allow me to present a practical demonstration of how to map the market structure in real-time. At this point, we should anticipate a pullback, so it would be wise to consider trades that go back into the break.

Utilizing Market Structure in Forex Trading

Once traders have recognized market structure in forex, they can apply this knowledge to make well-informed decisions about when to enter or exit trades. For instance, in a trending market, traders can use trend lines to pinpoint potential areas of support and resistance and make well-informed decisions about when to enter or exit trades.

In a ranging market, traders can use support and resistance levels to spot potential areas of support and resistance and make well-informed decisions about when to enter or exit trades. In a reversing market, traders can use moving averages to determine potential areas of support and resistance and make well-informed decisions about when to enter or exit trades.

Conclusion