Nowadays trading become very popular. Especially forex trading and crypto trading. A lot of young generation are choosing trading as a career. Trading is one of the quickest ways to earn money online. That’s true but new traders often think that trading is an overnight success Scheme. They considered learning about the market as just a waste of time. They jump into the market and start trading without any candlestick kowledge, chart pattern knowledge, or indicators. Some of them just use an indicator and trade. That’s not the right way of trading. To sustain long-term in the market you have to know about market basics and its structure. You have to know about the forex market structure. But first, you need to know what is forex market structure.
What Is Forex Market Structure?
Forex means foreign exchange. It is the largest financial market in the world. You can see the live market 24 hours working day.
Forex market structure is how the market moves according to price action. This market structure is similar to all other assets like stocks, crypto, and indices. If you acquire knowledge of market structure. You can apply and trade on any market.
Besides the forex market structure explains into two levels. Interbank market and the OTC (Over The Counter). Banks, financial institutions, and central banks are the main participants who are involved in large deals in the interbank market. On the other hand, an over-the-counter market is where individuals, retailers, investors, and companies trade on currencies through online brokers.
Why You Should Know About Forex Market Structure?
The Forex market is a huge financial market. To understand the market sentiment you must have a better knowledge of the forex market structure. Because the market does not move always in the same direction or the same way. It changes its direction and movement according to market sentiments. To become a professional trader and trade a perfect entry point, there is no substitute for market structure.
Even if you want to know advance staffs of trading. Still, you have to know the basics of market structure. Fundamentals are essential for every sector. Not only for trading.
Forex Market Structure
Basically, the market structure is divided into three categories. According to the buyer’s and seller’s sentiments.
1. Trendy market
2. Range Market / Side Ways Market
3. Consolidated Zone/ Stack Area
1. Trendy Market
Market trends are very crucial and many traders consider them to be the cornerstone of market knowledge. Market trends are very important to any trader to trade with their strategies and take advantage of them. For example, if a trader sees a bullish uptrend and a pressure of a lot of buyers. He anticipates that the market may uptrend and take a long position. Alternatively in a downtrend case. The trendy market is two types.
Bullish Trendy Market
A bullish market or bull market is a rising market. It always indicates the pressure on buyers and the exhaustion of sellers.
A bullish market can form in two ways. The first one is a straight uptrend. We all know that the market does not move straight up or down. It makes a curve when the price moves. The price movement of the market always moves like a (V) shape. That’s why higher highs and higher lows are formed. But in some cases, the market doesn’t make higher highs and higher lows. It moves straight upward for some time. It indicates the strong entrance of buyers.
Bearish trendy market
A bearish market also can be of two types. The lower lows and lower highs. The lower lows and lower highs tell that the market is downtrend. But still, there are some buyers who try to push the market. But a straight downward direction tells us that there are no buyers and sellers are fully in control.
2. Range Market / Sideways Market
A sideways market or ranging market is a market structure in which the price always moves in a specific price range. The price movement between two horizontal lines. The price action tells us that a side-ways market is a stable market.
The logic behind a sideways market is the almost equal pressure of buyers and sellers. The buyers try to push the market up and want to break out from the upper side. Same case with the seller. After that, a strong breakout can be seen from a buyer’s side or seller’s side.
Support and resistance strongly work in sideways markets rather than trendy markets. There are a lot of traders who are using the same support and resistance formula in trendy markets and book losses whereas some traders use it smartly in sideways markets and take profits. Now you can understand how important the market structure is.
3. Consolidation Market
Consolidation market structure is a market condition where the price oscillates between a particular range. The consolidation condition happens because of the trader’s indecisiveness. A consolidation zone takes hours, days even weeks to break out. It depends on the time frame. A consolidation pattern could be broken for several reasons like three bull news which means very important and highly impactful news. The triggering of the succession of limit orders and so on.
A consolidation zone is a very risky zone. If you are not an experienced trader. Then do not trade in the consolidation zone. Skip that market. Even most of the strategies or indicators are not working properly in that market. Indicator shows a lot of false signals which cause huge losses to a trader. So my advice is to stay away from the market if you are not a pro trader.
Conclusion
Understanding market sentiment is most important to trade wisely. The market structure will help you a lot in that case. On the basis of market structure, you will know which strategy should you use in which market.
Only trade on the basis of the market is not enough. You need a good strategy. Discipline and consistency is the key. Manage your risk and money. Use a proper risk-reward ratio. Be patient and control your FOMO and emotions. Trade with the best brokers in the world to maintain consistency.