1. Market Structure Types
Type 1 (Bullish Example)
Market forms a high (minor structure) and a low. Then forms another high, breaks the previous high, and comes back down. It breaks the structure and sweeps liquidity of the low. Market goes back up, breaks structure again, forms a minor pullback (substructure), but this pullback does not reach the low that swept liquidity. Then market breaks the recent high again, reverses, and comes down to sweep the low of the pullback. After that, it taps into another block of the earlier low that swept liquidity before going back up.
Type 2 (Bullish Example)
Market forms higher highs and higher lows. Market breaks the high, then pulls back and forms a low. It sweeps liquidity to the downside. Before breaking structure back up, it forms a pullback. After the pullback, market pushes up, breaks structure, then comes back down. It takes out the low of the pullback (that did not reach the other block of the low that swept liquidity). That low becomes the buying point before the market goes back up.
(Both types are vice versa for bearish markets.)
2. Liquidity Concepts
Transactional Liquidity
When market breaks a minor structure high or low, liquidity rests on that broken point. When market pulls back and sweeps liquidity by breaking another structure, that is liquidity sweep.
Structural Liquidity (Substructure)
Formed during pullbacks after structure breaks. Market must take out this liquidity during retracement before continuing trend.
Inducement Liquidity
Happens when there is no structural liquidity. The last swept liquidity point becomes the inducement point. Market takes out this inducement liquidity before continuing the trend. Traders often misunderstand this point.
3. Points of Interest (POI)
Includes:
Order Blocks Market Structure Shift Change of Character Fair Value Gap Break of Structure
4. Break of Structure (BOS)
Market breaks previous swing highs (in uptrend) or swing lows (in downtrend) and closes beyond it. Change of Character: Market breaks structure in one direction, retraces, breaks structure again (possible reversal but not confirmed). Market Structure Shift: Market breaks structure in one direction, retraces, breaks structure in the opposite direction twice, confirming a full trend change.
5. Fair Value Gap (FVG)
Imbalance in the market price where price moved too fast. Market must return to fill this gap. Two types of valid FVG: Mitigated FVG (price returns and fills the gap). FVG located below 50% Fibonacci retracement or closer to other blocks. When multiple FVGs exist near these levels, choose the one with the largest gap.
6. Order Blocks (Other Blocks)
The last bearish candle before price reversed upwards (bullish) or the last bullish candle before price reversed downwards (bearish). These blocks act as strong areas for trade entries.
7. Entry Models
Quasimodo Reversal Pattern: Use Break of Structure and protected low (liquidity sweep point). Draw Fibonacci from protected low to Break of Structure point. If last candle before liquidity sweep is below 50% Fibonacci level, this is a strong entry. Stop loss always placed below the swing point. Other Patterns: Engulfing candles, pin bars, and other price action signals.
8. Summary for Valid Swing Structure
For bullish setups, substructure must be below 50% Fibonacci retracement to confirm validity. Market should always assume substructure first. If no substructure forms, the last low (liquidity sweep point) becomes the point of interest and next liquidity target. Use entry models (engulfing, pin bar, Quasimodo, etc.) around these zones.
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