Steemit Crypto Academy Season 03 - Week 02 | Market Structure Break (MSB) Strategy to Trade Reversals
Steemit Crypto Academy has started its season 03 by expanding the team of Crypto Professors and making three levels to cater all types who students from Beginner to Advanced Level. It will provide an excellent opportunity to new steemians who want to start their journey in Crypto world and advanced steemians who want to take their crypto journey to another level.
I am extremely excited to be part of the Crypto Academy Team and thankful to Steemit Team who provided me this opportunity to share my knowledge and experience with all the students. As a price action trader, I will try my best to cascade down my practical trading approach towards students so it can benefit everyone in real time.
You will be learning my favorite price action strategy in my first lecture that is called Market Structure Break Strategy (MSB) which is awesome to spot and trade reversals. I will explain different aspects of the Market Structure Break Strategy and students will be able to understand the following from this lecture;
- Understanding the Market Structure
- The Concept of Higher Highs & Lower Highs and Lower Lows & Higher Lows
- Identify Trend Reversal Early with Market Structure Break
- Trade Entry Criteria for MSB Strategy
- Trade Exit Criteria for MSB Strategy
- Examples of Market Structure Break Trades on Crypto Assets
Understanding the Market Structure
Market Structure in simple price action pattern or movement of price in the market in specific patterns. Price always moves in a specific pattern by making support and resistance points and creating swing highs and swing lows. You need to know that market moves in three ways i.e Uptrend, downtrend and sideways. Market Structure is separate for these three market movements and I am going to focus on Market Structure for Uptrend and Market Structure for downtrend because this is where you need to understand the reversal trades using MSB strategy.
Market Structure for Uptrend
You will see a series of Swing Highs and lows in an uptrend market structure where the next swing high and lows would be higher than the previous ones. In simple words, you will see price moving in an upward zig-zag pattern going up. I am showing you Bitcoin chart by drawing the swing points in an uptrend market structure so you can clearly understand it.
Market Structure for Downtrend
You will see a series of Swing Lows and Highs in a downtrend market structure where the next swing lows and highs would be lower than the previous ones. In simple words, you will see price moving in a downward zig-zag pattern going down. I am showing you Bitcoin chart by drawing the swing points in a downtrend market structure so you can clearly understand it.
The Concept of Higher Highs & Lower Highs and Lower Lows & Higher Lows
Many of you might have read these terms but most of you don't know what exactly they are and how they can be used to take maximum benefit from the market. These are very important points to understand because Market Structure Break strategy depends on your understanding of these points. I will try to explain them in a very easy way so you don't feel any confusion if you have from your previous learnings.
This is a swing point in an uptrend that is formed higher than the previous swing high. You need to wait for at least 2 or 3 candles close above the previous swing high point to determine it is a new swing point. I am making an illustration to show you exactly how these points will look like.
No uptrend will continue to go up forever and it has to reverse at some point. This is where we need to understand the Lower High. This is a swing high point that will be formed at top of an uptrend but this swing high point will fail to break the previous swing high point and formed lower than the previous swing high. That is why it is called Lower High and I am making an illustration to show you exactly how Lower High will look in the market.
This is a swing point in a downtrend that is formed lower than the previous swing low. You need to wait for at least 2 or 3 candles close below the previous swing low point to determine it is a new swing point. I am making an illustration to show you exactly how these points will look like.
No downtrend will continue to go down forever and it has to reverse at some point. This is where we need to understand the Higher Low. This is a swing low point that will be formed at bottom of a downtrend but this swing low point will fail to break the previous swing low point and formed above the previous swing low. That is why it is called Higher Low and I am making an illustration to show you exactly how Higher Low will look in the market.
Identify Trend Reversal Early with MSB
Now, you understand the concepts of Lower High and Higher Low and these will help you identify the potential trend reversal areas. There are three things you need to focus that will help you identify the Market Structure Break. I will explain these elements by showing the reversal of both uptrend and downtrend on the charts.
Identify Uptrend Reversal Early
1 - Formation of Lower high at top of an uptrend
2 - Marking the Neckline of Market Structure
3 - Waiting for the clear break of Neckline
When these 3 conditions are fulfilled, it is an indication that the trend will reverse from that point. You can see the below chart of Bitcoin where these conditions are met and then the trend reversed with downward move.
Identify Downtrend Reversal Early
1 - Formation of Higher Low at Bottom of a downtrend
2 - Marking the Neckline of Market Structure
3 - Waiting for the clear break of Neckline
When these 3 conditions are fulfilled, it is an indication that the trend will reverse from that point. You can see the below chart of Ethereum where these conditions are met and then the trend reversed with upward move.
Trade Entry Criteria for MSB Strategy
There must be rules to take entry into the market for any strategy. Similarly, MSB strategy has its trade entry criteria that have to be met before you take a trade. I will explain the trade entry criteria for both Buy and Sell Positions.
Buy Entry Criteria
1 - Market should be in downtrend that can be short term as well depending upon the time frame. I personally trade on 1 hour and 15 minutes time frame mostly.
2 - Price should make a Higher Low after a series of Lower Lows
3 - Mark the Neckline after Higher Low is formed that will serve as a level that needs a clear break.
4 - Wait for a clear bullish candle that will break through the neckline and close above it. This is called Market Structure Break.
5 - Now, take the Buy Trade where your entry price should be just above the Market Structure Break.
Sell Entry Criteria
1 - Market should be in an uptrend that can be short term as well depending upon the time frame. I personally trade on 1 hour and 15 minutes time frame mostly.
2 - Price should make a Lower High after a series of Higher Highs.
3 - Mark the Neckline after Lower High is formed that will serve as a level that needs a clear break.
4 - Wait for a clear bearish candle that will break through the neckline and close below it. This is called Market Structure Break.
5 - Now, take the Sell Trade where your entry price should be just below the Market Structure Break.
Trade Exit Criteria for MSB Strategy
Entering into a trade at the right point is important but it is equally important to exit from a trade at right time. There are two types of exit criteria when we follow any strategy. One is to exit when trade goes in our favor and the other is to exit when trade goes against our direction. I will explain the exit criteria for both scenarios so you can take decisions at right time and avoid emotionals factor.
Trade Exit Criteria When in Loss
1 - We should set a Stop Loss Level in case our trade goes in the wrong direction after entry.
2 - This Stop Loss level should be above the Lower High Point (In case of Sell Trade)
3 - This Stop Loss level should be below the Higher Low Point (In case of Buy Trade)
4 - If price crosses the stop loss levels, it means the trade setup is invalidated and we should exit the trade and wait for another setup.
Trade Exit Criteria When in Profit
1 - We Should Set Take Profit level in case our trade goes in the desired direction.
2 - Take profit level should be 1:1 RR (Risk:Reward) at least which means it should be at equal of our stop loss level.
3 - Personally I like to set my take profits at 1:2 RR but I will recommend everyone to use 1:1 RR until they get good practice with this strategy.
4 - When price hits your take profit levels, you can book the profits ar exit from trade.
Trade Exit Example at 1:1 RR
Trade Exit Example at 1:2 RR
Examples of MSB Trades on Crypto Assets
I hope you have understood the Market Structure Break Strategy along with its different elements and criteria. I am showing you some examples of the crypto charts where this strategy has worked well.
Example on 15 Minute Time Frame
Litecoin has broken the market structure down on 15 minute time frame and given more than 1:1 profit. I am just sharing the example with 1:1 RR so you can calculate your positions correctly in your task.
Example on 1 Hour Time Frame
Steem has made a perfect Buy setup and performed perfectly. It has given more than 1:1 profit but I am just sharing the example with 1:1 RR so you can calculate your positions correctly in your task.
Example on Daily Time Frame (I knew it early than most Traders)
I am showing this example because I knew it early than most of the traders and you will also want to know the reason. The reason was obvious Market Structure Break on this Bitcoin Daily Chart for a Sell. This is the power of MSB strategy that will make you stand out from other traders.
Market Structure is price action pattern that can be used to identify and trade the reversals early.
Lower Highs and Higher Lows are key areas that you should notice because that can be start of Market Structure Break.
You can identify the trend reversal early by monitoring the formation of Lower Highs/Higher Lows, Neckline and Clear break of Neckline.
There are certain criteria that you should monitor before taking Market Structure Break Trades.
You should understand the trade exit criteria for both scenarios i.e. profit and loss.
You can spot and trade Market Structure Break trades on any time frame. Shorter time frame will provide you more setups but it needs quick decision making. My personal favorite time frame to trade MSB strategy are 1 hour and 15 minutes.
Market Structure Break Strategy is very powerful and it will make you a better trade with time that will relieve you from the need of any indicators and you will still know the potential reversals early.
1 - What do you understand about Market Structure?
2 - What do you understand about Lower High and Higher Low? Give Chart Examples from Crypto Assets.
3 - How will you identify Trend Reversal early using Market Structure Break? (Screenshots Needed)
4 - Explain Trade Entry and Exit Criteria on any Crypto Asset using any time frame of your choice (Screenshots Needed)
5 - Place 2 demo trades on crypto assets using Market Structure Break Strategy. You can use lower timeframe for these demo trades (Screenshots Needed)
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