Let’s talk about Market Structure and Price Action study, commencing with a question I received on Thursday –
- Do you still do daily study of market structure?
And my response, sent out via social media:
A followup comment from the original questioner…
- “I’ve tried this in the past but not been able to stick with it. Too many times I just don’t know what to study and just give up.”
I get that.
If you don’t have a plan then there will definitely be days where you stare blankly at the chart, with no idea at all where to start.
So here’s a plan, with three options for Market Structure and Price Action study, in order of preference.
- If you have a current area you’re focusing on improving, and the current day’s charts offer an example of that subject, then study that. See here for some ideas.
- Review any highly memorable sequences – perhaps something which trapped you on the wrong side of the market, or something that triggered exceptional opportunity in the markets.
- And for those times when neither of the above is an option – have a standard “go to” study item that will always be available.
Your priority should be something from the first two options.
But there are days when there is no obvious chart sequence to study. And so rather than sitting with the trader’s equivalent of writer’s block, before just giving up, we look to the third option for a quick and immediate solution.
A price sequence that will ALWAYS (or almost always) be available. Like this…
Study the TRANSITIONS from one trend state to another.
It’s rare that there will be a day with no trend change at all from start to finish. So pick one and study it.
Let’s look at Monday through to Thursday this week, on the emini NASDAQ one-minute trading timeframe.
There’s not a lot of answers in today’s article. Just a lot of questions.
But as that last image suggests, it’s the questions that lead to understanding and awareness in the markets.
Every day, consider finding something within the market to study. It only takes a couple of minutes, but the benefits could be priceless.
Your priority should be any area that you’re currently focusing on for improvement. Or any sequence which raised significant concern or interest from that day.
But in the absence of any of these, be sure to find a standard GO TO subject for your daily study. Something that appears in the charts each and every day.
Today’s article suggests one. It’s not the only one. But it’s one I find quite valuable.
Study the transitions!
Happy trading,
Lance Beggs
Hi Lance,
I do like to characterize the markets. Price movement is a story between the Bulls and the Bears that entail a battle for strength. It’s a story that needs narration; a play-by-play, if you will. And sometimes, the opponents are equally matched and find themselves in equilibrium (or balanced) and we have a sideways trend. A good environment for a mean reversion type of approach to exploiting the markets.
But somebody will eventually win the battle for strength.
Now, let’s say mean reversion isn’t my game, then I should be seeking imbalance or a trend. Whether a long term trend or a short term trend, nonetheless, I would be seeking imbalance.
If I want to be bullish and I’m not interested in timing a bottom (mean reversion) then I want to see the Bears get decimated. Now, the resistance level of the ST is the Bear’s stronghold. That’s where the Bear generals are and that’s where they send out their troops to meet in the middle and battle to reach support. So, resistance is the level I need to see get destroyed. I need to see the Bear generals get completely decimated. So, often times explosive bullish candles smashing through bearish strongholds demonstrate just this.
But as you say, for every potential setup entry point, a story needs to be told of the battle to get to that point. Often times, I’m seeking narration that describes a good initial bearish effort but is turning into a waning demonstration to recapture their initial strength and eventually settling into something pathetic and then comes the bullish “croup de grace” punch to the nuts: the explosive penetrating smashing bullish break out.
So, I’m looking for these penetrating candles to be shaved and at least twice as big as the candles proceeding it. At this point, yep, I’ll officially be bullish looking for an entry long.
I’m definitely not interested in going long in the middle of the equilibrium area (ST); anything can happen there. And I’m not really interested in trying to time the bottom either. I have no real proof that the bulls are in control and at that point I would be trading against bearish strength.
I’m looking for bullish imbalance, where the order flow is tipped in favor of the Bulls causing price to rise. And this imbalance would mainly be accounted for by the Bears simply withdrawing. Yep, the bears got punched in the nuts and are simply not there anymore, so the Bulls are free to travel higher. But, the Bears have regrouped and retooled and are definitely ready at the next resistance level.
Thanks Lance
David,
What you described here is possibly my favourite sign of a potential break of the sideways trend – “Often times, I’m seeking narration that describes a good initial bearish effort but is turning into a waning demonstration to recapture their initial strength and eventually settling into something pathetic and then comes the bullish “croup de grace” punch to the nuts: the explosive penetrating smashing bullish break out.”
I love it! If you ever start a blog or trading site/group of any kind, let me know. 🙂
Cheers,
Lance