Market Structure: basic terminologies of the market for beginners

• Market structure helps traders to predict the movement of the price.
• Support is the lowest level of price and resistance is the highest level of price.

Market structure is the condition, behavior, and current flow of the market. It indicates the support level resistance level, swing highs, and swing lows in the market. We can identify the market trend, direction of movement, and whether the market is in trend or not.

Types of Market Structure

Market structure can be divided into three categories 

• Bullish Market Structure

  A bullish market is defined as a trend where there is a series of higher highs (HH) and higher lows (HL) and the trend continues until there are any lower lows(LL).

• Bearish Market Structure

The bearish structure consists of lower lows (LL) and lower highs (LH) and this trend continues until there are higher highs recorded in the price.

• Side-ways Market Structure

 Rice is said to be in a side-ways structure when the price records only equal highs (EH) and equal lows (EL), it is also said horizontal movement in price and a ‘chop’.

Price continuation

To understand price continuation we have to check the previous candle, is it showing higher highs (Uptrend) or whether it is showing previous lower lows (Downtrend)? It gives the information about buying and selling, if the candles are green then it means currently there is more buying in the market compared to selling and if it is red, then it means there is more selling happening in the market at that point in time. 

Support and resistance level in Market Structure

The trader tries to predict the movement of the price with the help of support and resistance levels, it restricts the movement of the price within the support and resistance level, and the price can move above or below this level too.

• Support level – support level is the level where the stock price touches the lowest price during a particular period of time. At this time a larger number of buyers buy the stock, to prevent the price from breaking down (price going below the support level).
• Resistance level –  it is opposite to the support level, it is the highest point which a price has achieved in a particular period of time. Conversely, at this point, more buyers are active to buy and try to increase the price and break out the resistance level.

Importance of Market Structure in Trading

Market structure is used by both new and professional traders to trade in the market with the aim to maximize profit and minimize loss. Market structure helps traders in understanding the trend in the market and the reversal point and gives the trader a feel of the current market condition.

Market structure is a two-way auction process where buyers and sellers bid prices for their holdings. It informs traders about current market sentiment and also gives critical insights to the traders like how the market is behaving. It allows a trader to predict the direction of the market, and where the price is heading next.

The market structure also helps in creating efficient markets (asset prices reflect all available information). Market makers are an essential part of the market and they supply liquidity to the market for smooth transactions