A quick way to identify crypto market structure

Wolf king
5 min readSep 8, 2023
  • Always remember that the market structure has only three states, “The market moves in one of three ways: up(bull trend), down (bear trend) and sideways(Range of levels).”
  • The structural analysis method opens a window for us to read and understand the market. Understanding the market structure can effectively grasp the price operation law and the real strength of the market. The market structure is the most important and the most basic technical analysis method.
  • Understanding the market structure can effectively distinguish the market retracement from the market drive, which is an important method support for grasping the real market trend and objective analysis.

Upward trend:

Upward trend
  • The market structure of an upward trend is very simple, as long as higher highs and higher lows can be gradually formed during the trend phase, an upward structure can be formed.Every time a higher low point is confirmed, there must be a behavior of breaking through the previous high to form a higher high point, and each time the formation of a higher high point requires a higher low point price action to give sufficient momentum.Waiting patiently and looking for each structural higher and lower point is the most effective means of intervention, and it is also the best position to intervene in the upward trend.

Downward trend:

Downward trend
  • A downtrend is logically consistent with an uptrend and will still utilize lower lows and lower highs. However, please note that downtrend and uptrend seem to be the same in reverse in the ideal model, but they are very different in the real session, especially the lower highs. The pullback position often appears to be shallow, and the decline breaks through the lows is also very fast. We must pay attention to the distinction and understanding, and should not be confused because the ideal model is similar.

Range of levels :

Range of levels
  • Horizontal ranges are a category that many people find confusing, but their value is so important that many traders have made countless fortunes by learning how to operate them. Many of the best trading methods, such as 3tips, Fakeout, Sweep, The3, and FRVP, are built on a horizontal range structure.
  • Apart from uptrends, downtrends, and level ranges, there are other special situations that I often encounter in practice, which can be divided into two categories:

Burr phenomenon, the price crosses the trend or the price crosses the level range, and then returns quickly; This phenomenon can easily lead us to make mistakes, which can make people feel very distressed. Most of the time, I need to judge the actual PA trend one by one, and it often takes experience to judge the authenticity of spikes that occur at the border or key points. As long as it respects the key points and key positions, we will still think that the price behavior remains inside the structure in most cases.

Chaos. Chaos states can be divided into two types: low volatility (chaos), high volatility (chaos). Low volatility chaos is easy to deal with by simply setting it within a more tolerant level, while high volatility chaos is caused by rapid bursts of forces in different directions, which can easily lead to huge losses for traders. This phenomenon often occurs during emergencies or policy releases!

So what exactly are the basic units of market structure?

123 structure

It’s actually very simple. It’s the 123 structure

1 represents the pump that pushes the force

2 represents a retracement following a push force

3 represents the push force for continuation.

123 structure
  • It is interesting that any trading market follows this rule, because it conforms to the objective law of people’s buying and selling habits and the constant transformation between the imbalance and balance of supply and demand.
  • Of course, if you’re still struggling to understand, think of boxing, where you need to build up your strength after each punch to prepare for the next one.
  • After understanding the above, you will be able to distinguish 90% of the situations in the trading market, but you cannot use the 123 structure to understand the analysis when you encounter nonlinear graphics or chaotic phases.
  • When you understand the market structure well, you will fundamentally change your trading thinking and habits. For example, in the chart below, many people are used to chasing higher in the red zone, but the market structure tells you that if you want to go to a higher high, there must be a higher low as a starting point, and the advantage of choosing the green zone is much higher than the red point.
Examples
  • Under this logic, you will find that opening a loss may not be a mistake in trend analysis, but more due to the failure to conduct structural analysis and patience to wait for a better intervention point. You will be able to trade much more smoothly and the pressure of holding orders will be effectively reduced if you get rid of the habit of chasing higher!
Examples

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Wolf king

Thank you for following!I am an accurate and fierce spot and futures trading strategist.Follow me and print money, find me on TG:@wolf_king8