In order to gain advantageous positions in financial markets, it is essential to accurately analyze price movements. This begins with understanding the Market Structure. We can say that market structure is an indispensable part of technical analysis for understanding overall trends in price movements and turning points. Smart Money Concepts (SMC) is an increasingly popular approach in modern technical analysis, and its cornerstone is the understanding of market structure. Market structure provides a roadmap for understanding how price moves in the market and how trends are formed. In this article, we will consider all aspects of what market structure is within the SMC framework, how it is analyzed and why it is important for traders.
What is the Market Structure?
Market structure is the arrangement of highs and lows formed
by price within a specific time frame. This pattern is used to determine the
overall direction (trend) of the market and possible reversal points. In the
Smart Money Concepts (SMC) approach, the analysis process begins with a clear reading
the market structure. Market structure refers to the pattern of price movements
over time and provides key insights into the direction in which an asset is
heading. This structure is a reflection of the power struggle between buyers
and sellers. In the SMC (Smart Money Concepts) approach, market structure is
the foundation for understanding price behavior and is typically analyzed
through three main types of trends:
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| Forex Market Structure (SMC). |
- Bullish Trend (Uptrend)
- Bearish Trend (Downtrend)
- Sideways Trend (Horizontal or Range Trend).
Bullish Trend (Uptrend)
An uptrend (bullish trend) is defined by the price forming
consecutive higher highs (HH) and higher lows (HL). This indicates that buyers
are strong in the market and are pushing the price upward. For traders, this
structure represents an environment where buying opportunities are more likely
to result in profitable outcomes.
Higher Highs (HH): This occurs when the current peak is
formed above the previous peak. It indicates that buyers have overcome the
previous resistance level and are pushing the price higher.
Higher Lows (HL): This occurs when the next low is formed
above the previous low. It shows that buyers are stepping in during each
pullback, limiting the price decline and supporting the continuation of the
uptrend.
In short, a continuous series of HHs and HLs indicates that
the market is maintaining its bullish trend and that the price is likely to
continue moving upward.
Bearish Trend (Downtrend)
A downtrend (bearish trend) occurs when the price forms
lower highs (LH) and lower lows (LL). This structure indicates that sellers are
expanding their area of influence and pushing the price downwards. In such a
scenario, sell positions become more favorable.
Lower Highs (LH): This happens when the current peak is
formed below the previous peak. It indicates that sellers are exerting pressure
below the previous resistance level, preventing the price from rising further.
Lower Lows (LL): This develops when the next low is formed
below the previous low. It shows that sellers are stepping in after each rally,
limiting upward movement and pushing the price lower.
In short, each new high is lower than the previous high, and
each new low is lower than the previous low. This suggests that the market is
being controlled by sellers and that the price may continue to decline.
Sideways Trend (Horizontal or Range Trend)
Sometimes the price neither forms an upward nor a downward
structure, meaning it moves sideways. The price fluctuates within a certain
range without creating a clear high-low pattern. This situation may indicate
that the market is indecisive and is accumulating energy for the next major
move. This is the liquidity accumulation phase. Institutional investors (smart
money) prepare their positions in these areas. SMC also takes into account
manipulations and fakeouts during this process.
Consolidation is the phase where the price does not move
significantly in any direction and fluctuates within a horizontal range.
Neither a consistent series of higher highs and higher lows (HH-HL) nor lower
highs and lower lows (LH-LL) is observed. Peaks and troughs generally form at
roughly the same levels. From the SMC perspective, this phase can be
interpreted as an accumulation or distribution stage, where buyers and sellers
are relatively balanced and no clear direction exists. SMC analysts try to identify
where liquidity is gathering within these ranges and which direction the
"smart money" is likely positioning itself. However, market structure
does not always progress in an orderly manner. Sometimes this structure breaks
down, and in SMC, important concepts such as Break of Structure (BOS) and
Change of Character (CHoCH) come into play. For example, within an uptrend, an
unexpectedly lower low may form, or in a downtrend, a higher high may be
observed. Such situations are the first signs that the trend is weakening or
may be about to reverse. Paying close attention to these breakdowns is crucial
in the SMC strategy because these points signal possible trend changes and new
opportunities.
Market structure is the main part of technical analysis in the SMC approach and the key to understanding how prices move. SMC looks at all kinds of price actions. While uptrends and downtrends are the basic patterns, sideways moves and other irregular price actions are also important. Knowing how to read bullish, bearish, and sideways trends helps traders make smarter decisions. Using SMC to understand market structure lets you not just follow trends but also see what the smart money is doing.