The next chapter in Drift's "Price Action Concepts 101" series focuses on Market Structure Breaks. This comprehensive series equips aspiring price action traders with essential concepts to help integrate these strategies into their trading. As the third installment in this series, this follows the previously covered topics of Fair Value Gaps and OrderBlocks, available in Drift's advanced learn section here. To fully grasp the content of this article, we recommend revisiting the previously covered concepts as we will be integrating them into this lesson.
Lesson 3: Market Structure
Market Structure is considered the cornerstone of price action trading and serves as the foundation for nearly every decision made by traders in this field. A deep understanding of market structure is crucial for those serious about mastering price action trading.
When the market is in an upward trend, the structure will display a series of higher highs and higher lows, signaling a bullish market where prices are expected to continue rising. Conversely, in a downtrend, the market structure will exhibit a sequence of lower highs and lower lows, indicating a bearish market. The key to successful price action trading lies in recognizing changes in market structure, where the market signals to you that it will likely reverse from being a bearish trend to a bullish trend.
What Is A Market Structure Break?
A Market Structure Break is a critical moment in price action trading, where the price gives traders their first indication that the trend may reverse. These breaks can be identified across all timeframes, but their effectiveness in shifting the market direction increases with higher timeframes.
Market Structure Breaks serve as key signals for price action traders, providing valuable insight into potential changes in market direction. By recognizing these breaks, traders can better position themselves to capitalize on these shifts, helping to maximize their profits and minimize their risk.
The graph above depicts a classic example of a bearish market structure that transforms into a bullish market after a Market Structure Break. As previously discussed, price action traders aim to identify moments in which the market is signaling a change in direction. By accurately recognizing a Market Structure Break, traders can utilize Fair Value Gaps and Orderblocks to enter the market, confident that the market structure has shifted and will continue in the new trend.
Using Market Structure To Identify Trading Opportunities
The graph above also exemplifies how an Orderblock (the last two downward candles) can serve as a catalyst for a trend reversal. The Orderblock acts as support, causing the trend to change from bearish to bullish. This showcases the significance of recognizing Market Structure Breaks and including them in your trading strategies.
One widely utilized strategy among price action traders is also to take advantage of Fair Value Gaps (FVG) that result from Market Structure Breaks. These traders enter the market at the FVG and anticipate a trend reversal, leveraging the power of Market Structure Breaks to maximize their profits and minimize their risks.
In conclusion, Market Structure plays a crucial role in price action trading as it serves as the foundation for nearly every decision made by traders in this field. A Market Structure Break signals a potential change in trend, providing valuable insight for traders to position themselves to capitalize on these shifts. By understanding and utilizing Market Structure Breaks along with Fair Value Gaps and Orderblocks, price action traders can increase their chances of success in the market and achieve their trading goals.
Nothing in the text should constitute financial advice, Drift is not responsible for any losses that may occur by following the contents of this article. All content is provided here for educational purposes only.