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What does it mean to trade with market structure?

What does it mean to trade with market structure?
Asked by
Paul Beck time-icon4 weeks ago
1 Answer Answer Question

Justin Freeman
Answered time-icon4 weeks ago

Most beginner traders are advised to trade with market structure, which can be confusing. This simply means that your trades should be based on market events.

The events referred to in this statement could be fundamental or technical. Events such as policy changes, geopolitical events and the release of macro reports are classified as fundamental events. Technical events refer to the patterns being seen on price charts as reflected in the actual price action as well as in the behaviour of various indicators.

Here’s a look at all the nuances of this topic in greater detail.


Always monitor fundamental events

Most technical traders will tell you that they do not monitor or react to fundamental events as they trade solely based on the price action reflected in price charts. However, every trader should pay attention to fundamental events that could impact the prices of different tradeable instruments.

It is no secret that fundamental triggers have become crucial drivers of the price action in the markets, as evidenced by current global events. For example, tweets by President Donald Trump have been a major driver behind the gains and losses in US equity markets.


Fundamental events can be predicted

The main argument presented by market technicians and technical traders is that the price action in a given instrument usually precedes any fundamental triggers. It is true that in the past, traders could easily predict the impact of any fundamental event in advance because most of these events were scheduled. However, President Trump’s administration has proven that some fundamental events can be very unpredictable and might not appear on price charts.

Nevertheless, experienced traders have devised brilliant ways to anticipate potential actions by the Trump administration based on prior events. Therefore, beginner and intermediate traders should also follow fundamental events to avoid nasty surprises in the markets.


What about technical conditions?

Technical conditions are the basis for all forms of technical analysis, which relies heavily on an asset’s price action. There are numerous ways in which a trader can analyse the technical conditions surrounding a particular asset, but the main ones are price action analysis and technical analysis based on indicators.

Most traders assume that trading with the market structure refers only to technical analysis, but we have seen that fundamental analysis can also influence market structure. Advocates of fundamental analysis tend to ignore technical analysis, just like technical analysis advocates tend to ignore market fundamentals, but both are wrong. The two types of analysis feed off each other, and you cannot have one without interacting with the other.


How does technical analysis merge with fundamentals?

We have shown that technical analysts who ignore fundamental triggers may find themselves on the losing side of a trade, and the same is true for the opposite group. Let’s look at some examples that demonstrate how the two forms of analysis are connected.

A fundamental trader has to look at the technical setup when determining the best spot to enter into a trade. For example, a fundamental trader who wants to trade the US non-farm payrolls report has to find the price location that offers the highest rewards for the lowest risk. Therefore, such a trader would scan the charts of currency pairs that include the US dollar and find one that offers a logical trade setup. The same reasoning applies to technical traders who may not trade fundamentals but should still keep track of fundamental releases since they could result in volatile price movements that affect their open trades.


Putting it all together

Trading with market structure is a simple concept that protects all traders from turning their activities in the markets into gambling. By focusing on market structures, traders can assess market conditions before taking a trade, which increases the chance of the trade being a winner, instead of placing a blind bet. Beginner traders should focus on understanding market structure and trading in line with it to accelerate their learning curve and profitability.


The bottom line

Every trader needs to trade in line with market structure regardless of whether their trading strategy is based on fundamental analysis or technical analysis. Traders who do not pay attention to market dynamics when placing trades are likely to make losses as their trading is more like gambling. Market structure is a powerful concept if understood and used correctly, and every trader should use this framework in their trading activities.

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