How to Build the Right Understanding of Market Structure
It is believed that stock trading is an auction where buyers and sellers work according to certain rules. This opinion comes from game theory, is based on numerous and rather complex formulas and is accepted ad factum in the investment community.
You have already realized that balance is trade in the fleet, and you want an imbalance when the distribution becomes abnormal, and it is shifted in some direction.
I am sure that you already feel that the market can be divided into two parts: balance (flet) and imbalance (impulse, trend). The story clearly shows how one moves into another. But how do you find crossings?
In any phase of the market, you can highlight the balance or momentum on the junior timeframe. Even if the cost changes very quickly, and right now - the most aggressive part of the pulse (as the waves would say: "the third wave in the third wave"), on the second chart it is possible to distinguish the balance for 10-15 seconds. The balance sheet is the most traded part of the market profile. Therefore, the analysis of the quotation should start with the senior TFs and go down to the junior. And analysis is necessary to make a decision about entering (or not entering) a deal, as well as its potential. Understanding that on the daily chart the balance sheet, and on the hourly chart the imbalance within the daily balance sheet begins, is very helpful in trading from borders.
The market is an auction having a 4-phase structure: impulse - fix (response, climax) - balance - impulse (scrapping or continuation of the previous trend).
The impulse is characterized by a step-by-step accumulation of liquidity, a rapid unidirectional change of price, as well as increased by 25-40% hourly and daily turnover relative to those in the balance sheet. I.e. A pulse is a change in the cost area on the corresponding timeframe.
2. Fix (culmination)
The fix is the release of volume versus momentum. In classical analysis, this is the same correction expected by many.
How to define a fix?
In the pulse phase, any horizontal volume is directed strictly to one side.
After the fiction, the balance on the TF in question comes. In our case, we can easily define the boundaries of the medium-term balance. A balance is the accumulation of volume within certain boundaries after a fiction.
4.1. Impulse as a continuation of a previous trend
4.2. Impulse as a scrap of a previous trend
As you have guessed, the most important argument before the continuation of the dynamics is the expansion of the corridor towards the previous dynamics (in our case - in the buy) with the subsequent set of liquidity in the former fixed zone.
How 's the scrapping going? How do you see it in the moment of balance on the relevant TF?
First, after 2 (less than 3) touches of the fixed zone and the zone of the last aggressors to push (in our case buyers) the quotation should remain in the balance. There must be a return to the fixed range.