Market Structure
The very basics of Market Structure are made up of the three Bars or Candles
This market structure defines by two consecutive bars in the same direction and the third in the opposite direction. The High and low are counted from the high and the low of the bar, not the closing price.
Market Structure Low
A Market Structure low (MSL) is the first sign of potential reversal in prices from a downtrend to an uptrend. It is usually made up of three consecutive candles: A low, a lower low, and then a higher low. The low is measured from the actual low of the candle, not the closing price.
The MSL is triggered when prices subsequently move above the high of the third candle.
An MSL can also be made up of two bars or candles when both have the same low. This is known as double bottom MSL. The double bottom MSL is a strong indicator indicating or predicting a change in price direction. Ideally, the first bar of the double bottom will be a down bar and the second will be an up bar.
A Market Structure low or MSL is not same as a swing low, a MSL is more specific in that the third candle is considered a trigger point to enter the market or exit the market.
Market Structure High
A Market Structure high (MSH) is the first sign of a potential reversal in prices from an uptrend to a downtrend. An MSH is usually made up of three consecutive candles; A high, a higher high, and then a lower high.
The MSH is triggered short when prices move below the low of the third bar.
A Market structure high or MSH is not the same as a swing high, a MSH is more specific in that the third candle is considered a trigger point to enter the market or exit the market.
An MSH can also be made up of two bars or candles when both have the same high, this is known as double top MSH. This is a strong indicator indicating or predicting a change in price direction. Ideally, the first bar of the double top will be an up bar and the second bar will be a down bar.
123 Reversal
The next most important building block is made up of MSL and MSH in combination. Just as an MS is the first sign of a potential reversal in price, the combination of an MSL and an MSH then a Higher MSL, is a confirmation pattern that a downtrend has reversed into an uptrend. The MSL trigger on the higher MSL is one possible point of entry for the 123 reversal trade; however, the reversal is not confirmed until prices move above the high of the previous MSH.
The MSL trigger on the higher MSL is one possible point of entry for a 123-reversal trade; however, the reversal is not confirmed until prices move above the high of the previous MSH. The Fibonacci system assists if you are skilled enough to interpret the various level. The confirmation pattern is essential for you to use this charting method effectively.
There are two types of 123 reversal Patterns (Bullish and bearish)
A bullish 123 reversal pattern will form from MSL, MSH, and a higher MSL. The confirmed entry should be above the MSH.
T Bearish 123 reversal pattern will form from MSH, MSL, and a higher MSH. The confirmed entry should be below the MSL.
Classical Wave Pattern
The prices do not move in a straight line, the market advance and retrace, normally this advancement and retracement have a proportional relationship. Retracement is what provides us with the opportunity not only to enter the trade but also to estimate when to get out of the same trade. The concept of Classical wave pattern is following.
Buyers outnumber sellers, and the price goes up, of course attracting more buyers, and more willing sellers, this continues until the buying pressure is exhausted. Then prices usually retrace. This occurs because buyers have switched sides to become sellers in order to take a profit. These sellers now outnumber the buyers and are chasing the price back down. In a trending market, this tends to have a rubber band effect; each advancement is met by a retracement. After the sellers have taken their profits, if the overall uptrend is still intact, the retracement will then be met by another advancement.
The combination of an advance, a retracement, and another higher advance forms a wave pattern, we call this wave pattern Classical Wave Pattern, this is not an Elliott wave. The Wave pattern is made up of an MSL, followed by an MSH, followed by a higher MSL The inverse is true for a downward market.
The first wave in a sequence is known as a seed wave because it is the seed from which the subsequent waves grow.
The Fibonacci ratios can be used to both gauge the retracement of one wave and predict the advancement of the next. All we need to know is the size of the first seed. Generally talking in Fibonacci sequence there should be between eight and thirteen bars between the first MSL and the next higher MSL.
