29:49
1 Market Structure · EXECUTION
AC Trade
Overview
This video explains market structure as a crucial tool for the execution phase in trading, emphasizing its role in confirming entries on lower time frames. It clarifies that market structure is most effective when used in conjunction with higher-level context, such as bias, narrative, and boundaries established in the analyst phase. The video details how to identify intermediate-term highs and lows, short-term highs and lows, and their relationship to price action on different time frames, stressing that market structure alone is insufficient for accurate trading without supporting concepts like order flow.
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Chapters
- Market structure is a key component of the execution phase, used to capitalize on trading ideas generated during analysis.
- It's most effective on confirmation or entry pattern time frames (daily and below), not for broad analysis on monthly or weekly charts.
- Market structure is only relevant when preceded by higher-level context: bias, narrative, boundary, and target.
- It serves as a tool to read lower time frames more clearly and understand boundaries within which price is moving.
Understanding where and how to apply market structure prevents misinterpretations and ensures it's used to confirm trades, rather than as a standalone predictive tool.
Using market structure on a 1-hour timeframe to confirm an entry pattern after establishing bullish context on a daily timeframe.
- Intermediate-term highs and lows are swing highs and lows that define the broader trading range or trend.
- A swing high is a three-candle pattern with a central candle's wick higher than its left and right neighbors.
- A swing low is a swing low surrounded by higher swing lows to its left and right.
- Short-term lows (or order flow lags) are created within the intermediate-term range and are responsible for pushing price higher.
- Short-term ranges are essentially order flow lags that contain a fair value gap.
Distinguishing between intermediate and short-term price levels helps traders identify the primary direction of price movement and the minor fluctuations within that trend.
Identifying an intermediate-term high on a 1-hour chart after price has moved from an intermediate-term low, with several short-term lows formed along the way.
- Market structure is intrinsically linked to context; without higher time frame context (bias, narrative, boundary), market structure analysis lacks accuracy.
- Context is established on higher time frames (e.g., monthly, weekly, daily) to define the overall direction and potential targets.
- Market structure then refines this context on lower time frames, acting as the 'entry pattern' confirmation.
- The intermediate-term low is typically formed at a boundary (like a discount array or PD array) within the established context.
This relationship ensures that trading decisions are based on a comprehensive view, starting with the big picture and drilling down to specific entry signals.
A daily value area high on a higher timeframe provides the context, and then market structure on the 1-hour timeframe is used to find the entry within that context.
- Confirming an intermediate-term low (ITL) involves using specific lower time frames based on the higher time frame's PD array.
- For a monthly PD array, a daily 'Sharp Turn' (ST) is used; for a weekly PD array, a 4-hour ST is used, and so on.
- A 'Sharp Turn' (ST) is a key concept that signifies the start of a potential new intermediate-term move, often involving displacement and a fair value gap.
- The intermediate-term low is confirmed once order flow (like a fair value gap higher) is established on the respective confirmation time frame.
This structured approach to confirmation across time frames increases the probability of identifying valid entry points and protected lows.
Using a 1-hour 'Sharp Turn' (ST) to confirm an intermediate-term low when trading off a daily PD array, especially if it's followed by a fair value gap higher.
- Confirmation can involve a 'Sharp Turn' (ST) alone or an 'ST plus RE' (rejection/continuation event).
- A 'RE' typically involves a fair value gap (FVG) being created after an ST, indicating continuation.
- More confirmation (like ST + RE) is needed on lower time frames (e.g., 1-hour ST + RE for a weekly PD array) compared to higher time frames (e.g., daily ST for a monthly PD array).
- The intermediate-term low is protected once an ST + RE (or sufficient ST confirmation) occurs, and the subsequent high becomes the intermediate-term high (target).
Understanding the nuances of ST and RE allows traders to refine their entry strategies and manage risk by waiting for stronger confirmation signals.
Waiting for a 1-hour 'Sharp Turn' followed by a fair value gap higher (ST + RE) to confirm an intermediate-term low when looking to enter a trade based on a weekly PD array.
Key takeaways
- Market structure is a tool for confirming entries on lower time frames, not for initial analysis.
- Higher time frame context (bias, narrative, boundary) is essential before applying market structure.
- Intermediate-term highs and lows define the broader trend, while short-term levels represent fluctuations within that trend.
- Market structure's accuracy is significantly enhanced when combined with concepts like order flow and fair value gaps.
- Confirmation across multiple time frames (e.g., daily ST for monthly PD array) increases trade validity.
- A 'Sharp Turn' (ST) and a 'Rejection/Continuation Event' (RE) are key components for confirming intermediate-term price levels.
- The intermediate-term low is considered protected once sufficient confirmation (like ST + RE) is observed.
Key terms
Market StructureExecution PhaseAnalyst PhaseConfirmation Time FramesEntry Pattern Time FramesBiasNarrativeBoundaryTargetIntermediate Term HighIntermediate Term LowSwing HighSwing LowShort Term LowOrder Flow LagShort Term RangeFair Value Gap (FVG)Premium ArrayDiscount ArrayPD Array (Premium/Discount Array)Sharp Turn (ST)RE (Rejection/Continuation Event)
Test your understanding
- Why is market structure considered an execution tool rather than an analytical one?
- How does higher time frame context influence the relevance and accuracy of market structure analysis?
- What is the difference between an intermediate-term low and a short-term low in the context of market structure?
- How can a trader use the concepts of 'Sharp Turn' and 'RE' to confirm an intermediate-term low?
- Explain the relationship between PD arrays on higher time frames and the confirmation time frames used for market structure.