Market structure

19 September 2023 08:40

Price Action Pyramid:

1) Ticks:-
Tick is the raw form of data which we receive from the exchange. It contains information about the instrument name,
time stamp, price at which the transaction happened, number of transactions that are happened at that price(volume).

2) Timeframe:-
As it is hard to analyze tick data real-time because of the pace, we encapsulate that data into small packets depending on
how fast we want to read the price action. We call this as a timeframe. This is the first stepping stone of the price action
analysis.

3) Candles:-
Once the timeframe is fixed, OHLC data is what forms a candle/bar. In other words, out of all the ticks that are than in
that particular packet, we are only interested in the four ticks Open, High, Low and Close to understand how the
exchange of hands happened between buyers and sellers during that candle.
So a candle is just a group of ticks in a given timeframe. It can either be Green/Red/Doji.

4) Swings:-
Now if we combine a group of candles that are moving in one particular direction, a swing is formed.
So a swing is just a group of candles that are more are less moved in one direction till a U turn happened.
Swing can either be Up/Down, Impulsive(strong)/Corrective(weak).

5) Short Term Trends:-

Alternative upswing and a downswing will form a short term trend.
It can either be Up/Down/Sideways(range)

6) Intermediate Term Trends:-

Alternative short term trends form an intermediate trend.
It can either be Up/Down/Sideways(range)

7) Long Term Trends:-

Alternative intermediate trends form a long term trend.
It can either be Up/Down/Sideways(range)

This is the bottom to top price action pyramid. An important thing to keep in mind here is, it all started after choosing the
timeframe at first. So there is no meaning if a candle or a swing or a trend is not attached to the timeframe. Someone saying
nifty is bullish doesn't carry any meaning. If he says, Nifty short term trend is bullish for 15M timeframe, that completes t he
sentence.

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Swing Analysis
19 September 2023 09:12

It is easy to identify whether a candle is bullish/bearish as it is clearly evident from the color and the size of the body. But it
needs some deep looking while doing the same with the swings.
Just like we have OHLC defining the character of the swing, we have three things to look for while analyzing the character of a
swing. Namely,

1) Signal candle:-
This is the first candle of the swing whose color matches with the direction of the swing that you are analyzing. So the
first green candle in an upswing is known as the signal candle of that upswing, and the first red candle for a downswing is
known as the trigger candle of that downswing.

2) Trigger candle:-
This is the first candle that has broken the high/low of the signal candle in the direction of the swing. So the first candle
that breaks the high of the signal candle is the trigger candle of the upswing. The first candle that breaks the low of the
signal candle is the trigger candle of the downswing.

3) Last wholesale price:-

The high of the signal candle in an upswing, and the low of the signal candle in a downswing is known as the LWP of that
swing.

Unless it has all these three, I personally don't consider it as a swing. For example if there is an upswing, and market forms a
big red candle and then continues up without breaking the low of the red candle, I don't consider that as a downswing in the
timeframe that I'm looking at (it can be a swing in a smaller timeframe) as there is no trigger candle to it.
A swing in which the trigger candle closes beyond the LWP in the direction of the swing is expected to be Impulsive in nature.
Ex. For an upswing, trigger candle closing green and above LWP.
A swing in which the trigger candle closes within the LWP, and against the direction of the swing is expected to be corrective in
nature. Ex:- For an upswing, trigger candle closing red and below the LWP.
A swing in which the trigger candle closes within the LWP, but in favor of the swing needs extra information/candles to make
an opinion on its strength. Ex:- For an upswing, trigger candle closing green and below the LWP. Wait for few more candles in
this case.

Swing Pivots:-
Alternative upswings and downswings will give raise to the swing pivots. Swing highs and swing lows.
Swing high is the connecting point between an upswing and a downswing.
Swing low is the connecting point between a downswing and an upswing.
To consider a turning point as a pivot, it must fulfill the following conditions.
Swing High:-
a) It must have a red candle, and a candle that's breaking the low of that red candle on the right side of it. (A confirmation
of a downswing on the right side).
b) The swing high must have the highest high among left two and the right two candles.
Swing Low:-
a) It must have a green candle, and a candle that's breaking the high of that green candle on the right side of it. (A
confirmation of an upswing on the right side).
b) The swing low must have the lowest low among the left two and the right two candles.
Red arrows represent swing highs.
Green arrows represent swing lows in the following image.

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Price Action Fundamentals Page 3
Trend Analysis
19 September 2023 13:10

Fractal Nature of the Market:-

Going away from the traditional definitions of the fractal nature, I only adapt one caveat.
A Candle in one timeframe is a swing in a smaller timeframe.
A swing in one timeframe is a short term trend in a smaller timeframe. And the same swing is an
intermediate trend in a much smaller timeframe. And the same swing is a long term trend in a much
smaller timeframe.
I observed that this fractal nature appears when the multiplication factor between the timeframe
shift is anything greater than 4.
That's why I use the following combination.

Intraday
3M-15M-75M-Daily
15M-75M-Daily-Weekly

Weekly spreads
15M-75M-Daily-Weekly
75M-Daily-Weekly-Monthly

The same can be applied across whatever the timeframe combination. I personally don't do
directional trading on bigger timeframes as I predominantly trade the indices and when we look on a
bigger timeframes, non-directional trades work better and much peaceful to manage.

By using the fractal nature of the markets, we can easily identify the any trend of any timeframe just
by looking at the swing direction of higher timeframes.
Ie.
15M Short term trend = 75M Strong swing direction.
15M Intermediate trend = Daily Strong swing direction.
15M long term trend = Weekly Strong swing direction.

The keyword here is "Strong". Because market likes to stay in a range most of the time. So unless
there is strength, the benefit of doubt goes to the range. So anything other than a strong swing in
higher timeframe is a sideways environment in a lower timeframe. Just look at recent 3 candles in a
higher timeframe to form a trend structure in the trading timeframe.
a) If it is a part of an upswing in HTF, and is still strong, TTF short term trend is up.
b) If it is a part of an upswing in HTF, but didn't show any sign of strength at least once to the
upside in the last 3 candles, TTF short term trend is a range, slightly leaned to the bullishness.
Vice versa for a downswing and no strength in last 3 candles in HTF.
c) If it is a part of a downswing in HTF, and still strong , TTF short term trend is down.
Directional trading can be done in two ways. Trend following or swing trading in whatever the
timeframe you choose.

Trend following strategy:-

If the intention is to ride the whole trend ie. holding during the pullbacks, best trades happen when,
a) Long term trend, Intermediate trend and the short term trends align and then enter on
retracements.
b) Wait for the long term trend and the intermediate trend aligns with each other, and wait till
short term trend goes against them, and trade the trend reversals.

Swing trading strategy:-

If the intention is to enter on retracements and exit when the swing ends, without holding during
the pullbacks, ignore the long term trend. Again two ways of doing it,

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the pullbacks, ignore the long term trend. Again two ways of doing it,
a) Wait for the intermediate trend and the short term trend aligns with each other, and then
enter on retracements.
b) Wait for the short term trend to go against intermediate trend, then then look for trend
reversal trades in short term trend.

Important thing to keep in mind is, whatever analysis we have done so far is on the data that is
already printed on the charts. We can use this information to form a directional view, pick whether
you want to ride the trend or the swing, and then build a system using your existing knowledge to
exploit that direction.

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