Market Structure – This is What Determines if You Win or Lose in Trading.

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What is Market Structure?

Market structure is how the asset market always appears, regardless of the dynamism and changes that markets undergo.

You must have heard that the market is dynamic and keeps on changing every other time.

However, there is a template of the market that always remains intact. And this is what we call market structure.

So this unchanging template of the market, is what you need to play around with if you will win in trading.

If you fail to play around with the structure well, then you will definitely lose your money in trading.

The market structure comprises four stages namely:

  • The Accumulation Stage.
  • The Advancing Stage.
  • The Distribution Stage.
  • The Declining Stage.

You must understand the perfect trading techniques to navigate each stage lest you lose money trading.

Conditions are not the same in each stage and so you should know how to establish the stage a market is in, then pay attention to what happens there.

If you understand all this, you can trade each stage to emerge profitable in your everyday trading.

In this post, I will walk you through the various stages of the market structure.

I will also show you how each stage determines if you win or while trading in Olymp Trade.

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Here we go:

  1. The Accumulation Stage.

This stage of the market structure occurs after prices have been falling.

Here, prices are consolidating or ranging after a downtrend.

Basically, this is a price consolidation after a downtrend.

How do you identify that a market is in the accumulation stage?

By spotting a price range preceded by a long price fall.

Here, you will observe almost an equal number and sizes of bullish and bearish candlesticks.

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If you had applied any moving averages, they will be horizontal and the price will be moving up and down about them.

In the accumulation stage, bulls and bears are in a state of equilibrium and therefore the price is ranging.

What all that means is the volatility, at this stage, is low.

Prices are not changing rapidly in a definite direction but ranging within a constriction and that means low volatility.

How does this stage determine if you win or lose?

After establishing that the market is in an accumulation stage, then what that tells you is that you should trade the range until it is broken, after which you can trade the breakout.

After the breakout, if you continue trading downtrend related strategies, you will lose money.

Accumulation stage

  1. The Advancing Stage.

After the accumulation stage, what is expected is that the price will reverse from the initial downtrend into an uptrend.

For that reason, the price is meant to break out of the accumulation range upwards above the upper limit as seen in the image above.

The upward breakout is especially more probable when the lower limit of the accumulation stage range coincides with another support.

This other stronger support should be identified on a timeframe higher than the timeframe you are observing the charts on.

Well, whatever the case, the price has broken the accumulation range upwards and is now advancing upwards.

You will identify a market on the advancing stage by first spotting the accumulation stage preceded by a downtrend.

If there is no accumulation stage first, then what you are seeing might not be the advancing stage.

Here, the market is advancing upwards.

If you had applied any moving averages, they will be pointing upwards and the price trading above them.

You will also observe more and longer bullish than bearish candlesticks, as the price forms higher highs and lows progressively.

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Market volatility at this stage is high.

Prices are changing rapidly upwards.

If you trade upwards you will become highly profitable.

This stage determines if you win or lose money trading.

First, identify the accumulation stage.

Afterward, you can anticipate trading the upward breakout from the accumulation stage.

However, if the breakout left you behind, you can trade pullbacks because the price is in a healthy uptrend.

Where the price is in a strong uptrend, you can trade breakouts above previous swing highs and still emerge profitable.

The advancing stage. Trade the Trend

  1. The Distribution Stage.

This stage of the market structure occurs after prices have been rising.

Here, prices are consolidating or ranging after an uptrend.

Basically, this is a price consolidation after an uptrend.

How do you identify that a market is in the distribution stage?

By spotting a price range succeeded by a long price rise (advancing stage).

Here, you will observe almost an equal number and sizes of bullish and bearish candlesticks.

If you had applied any moving averages, they will be horizontal and the price will be moving up and down about them.

Bulls and bears are in a state of equilibrium and therefore the price is ranging.

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In matters volatility, at this stage, it is low.

Prices are not changing rapidly in a definite direction but ranging within a constriction and that means low volatility.

How does this stage determine if you win or lose in Olymp Trade?

After establishing that the market is in a distribution stage, then you should trade the range until it is broken, after which you can trade the breakout.

Until the market breaks out, don’t continue trading uptrend related strategies, you will lose money.

Distribution stage

  1. The Declining Stage.

After the distribution stage, what is expected is that the price will reverse from the initial uptrend into a downtrend.

For that reason, the price is meant to break out of the distribution stage downwards below the lower limit.

The downward breakout is especially more probable when the upper limit of the distribution stage range coincides with another resistance.

This other stronger resistance should be identified on a timeframe higher than the timeframe you are observing the charts on.

Whatever happens, the price has broken the distribution range downwards and is now declining downwards.

You will identify a market on the declining stage by first spotting the distribution stage preceded by an uptrend.

If there is no distribution stage first, then what you are seeing might not be the declining stage.

Note: – on the declining stage, the market is declining downwards.

If you had applied any moving averages, they will be pointing downwards and the price will trade below them.

Also Read: – HOW TO BACK TEST YOUR STRATEGY BEFORE YOU USE IT ON A LIVE ACCOUNT.

You will also observe more and longer bearish than bullish candlesticks, as the price forms lower highs and lows progressively.

Market volatility at this stage is high.

Prices are changing rapidly downwards.

Place downward trades for high profitability.

This stage determines if you win or lose on a downtrend so first identify the stage of the market.

Once you know how to identify it, you can anticipate trading the downward breakout from the distribution stage.

However, if the breakout leaves you behind, you can trade pullbacks because the price is in a healthy downtrend.

Final Thoughts on Market Structure.

Though dynamic and constantly changing, the asset market has an unchanging structure.

Knowledge of identifying and trading each component of the structure or lack of it, determine if you win or lose in Olymp Trade.

Happy Trading!


*Risk warning:

The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.
 

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