​How to Master Forex Market Structure in 3 Simple Steps

June 19, 2017

By Admiral Markets

Dear traders,

Do you sometimes feel lost and confused seeing price action abruptly turn around seemingly out of the blue, and head in the opposite direction?

This feeling can be highly frustrating, but every cloud has a silver lining: understanding the market structure has vastly improved my ability to read price charts and determine decent entry zones.

This article offers a simple 3-step guide on how to approach and dissect the market structure of any Forex, CFD, or commodity graph.

Support and Resistance: Spotting Key Decision Zones

The first critical step to understanding the market structure like a pro is plotting key Support and Resistance (S&R) on the chart. The reason is straightforward: the price will often respect, stop, or reverse at these S&R zones. This tends to happen especially when:


Free Reports:

Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter





Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.





  1. There is confluence of levels at or near a price zone.
  2. The price is approaching a respected and recent S&R level for the first or even second time.

Traders need to be aware of the major price zones to avoid trading into keys levels and perhaps even be prepared to trade away from those levels (i.e., taking a long at support if higher time frames are in an uptrend).

Key S&R levels can be very diverse, and, ultimately, it’s up to each trader to show the preferred tools. Keep in mind that adding too many S&R levels, however, will clutter the chart. Here are a few important examples:

  1. Round psychological levels, such as 1.10 or 1.25;
  2. Fibonacci retracements, or target levels;
  3. Bands like Admiral Keltner or Bollinger Bands;
  4. Pivot Points like Admiral Markets Pivot Points;
  5. Other S&R levels like Fractals and moving averages.

Up and Downtrend: Defining the Price Direction

The concept of trend indicates the overall direction of the chart. Is the price moving up, down, or sideways?

The chart is considered to be trending when the price is moving up (bullish) or down (bearish), whereas sideways movement is known as a range, or non-trending chart.

Trend is an important aspect of reading the chart as it offers traders the ability to understand which direction is stronger because the trend is likely to continue unless there are visible reversal patterns (see next paragraph).

The trend can be best captured by trend channels and a long-term moving average (MA) like 100, 150, or 200 sma, or Fibonacci MAs, such as 89 and 144 ema.

Source: Chart from Admiral Markets MT4 SE-EUR/USD 4h Chart 9 March-5 June 2017

Price Patterns: Understanding the Market Psychology

Patterns are repetitive price movements that provide more information to the trader. They provide more information about potential reversals, trend corrections, trend continuations, ranges, and breaks out of ranges.

For instance, bull flag chart patterns indicate that the price is much more likely to continue with the trend, especially, if the price manages to break flag resistance with strong candlesticks (indicating that the bulls are holding control).

There are many discovered and surely undiscovered patterns for traders to find and use, but be aware of patterns that lack internal logic. For example, expecting a bullish day on the GBP/USD just because your favourite football club won a match on Sunday is probably a random pattern.

Here is a list of some of useful and tested patterns:

  1. Chart patterns;
  2. Candlestick patterns;
  3. Divergence patterns;
  4. Break, pullback, and continuation patterns;
  5. Wave patterns.

Source: Chart from Admiral Markets MT4 SE-USD/JPY 4h chart 20 April-17 May 2017

The Path of Least Resistance: Utilising the Market Structure

The price flows naturally from one level to another as it chooses the path of least resistance. At each spot, the price could continue with its momentum or respect the support or resistance level. This means that:

  • The price will stop at (strong) support or resistance if the momentum is weaker;
  • The price will break through support or resistance if the momentum is stronger.

Patterns provide more information about the battle and balance between S&R and momentum. For instance, a continuation chart pattern like a bull flag could indicate that the S&R level might break once the momentum picks up speed again.

Price action follows the same rhythm as the flow of the river down the mountain: water will push aside small rocks, but go around a heavy rock.

Understanding the market structure means understanding the path of least resistance in a more comprehensive way, which is beneficial for both
discretionary and system traders. This will allow traders to filter out setups showcasing less potential to succeed and focus on those more prospective ones.

Watch the video below for further details and examples:

Cheers and safe trading,

Chris Svorcik

Follow
@ChrisSvorcik on Twitter for the latest market updates!
Connect with
Chris Svorcik on Facebook for the latest market updates!

Article by Admiral Markets

Source: ​How to Master Forex Market Structure in 3 Simple Steps


Admiral Markets is a leading online provider, offering trading with Forex and CFDs on stocks, indices, precious metals and energy.