Trend Structure.. Part 1..

Posted onOctober 4, 2016AuthorJagadeesh Chandra Kolli11 Comments

Hello everyone, .
Markets have been showing crazy volatility as expected from the start of
September(especially CL) and I hope everyone is handling it well. Volatility
gives a lot of opportunity and at the same time, it also makes the average
initial stop a bit wider than normal. Be defensive and handle with care. As
there will be a lot of good swings in a given day, you can be picky about the
trades. Look at volatility that way rather than trying to catch each and every
swing.
Alright. Without much ado allow me to walk you into todays article. I will be
an idiot if I say its the most important thing in the whole trade plan as by
now you all know that every single word we use in the trade plan does have
its own importance. Still, I gotta say this. This is damn too important as the
real game of reading past market information to project the high probable
near term future starts right at the point where and how you define the trend
structure. Everything that I am about to explain in this article are tested on
5min., 1H, 4H and Daily charts by myself. As price action concepts are
adaptable to all markets and timeframes, you can use in your trading
timeframe as well. But I suggest you to go through enough number of
historical charts to back test it if you are trading an unconventional
timeframe other than what I have mentioned above. Let me emphasize on
that again and excuse me for the capital letters,
AS A PRICE ACTION TRADER, YOU MUST HAVE A SECTION IN YOUR
TRADE PLAN TO DEFINE THE TREND STRUCTURE (RANGE/TREND) AT
ANY GIVEN POINT IN THE CHART
I cant thank Lance enough for introducing the concept of higher timeframe
structural framework into my trading as it made my trade plan complete
(even though we both have different approaches of defining that battlefield).
If you have missed that article, click here.
Once you have that HTF structural framework, its time to move onto the TTF
chart and define the trend structure that the market is in. Make a note that
trend and the bias is not always the same. When you are trying to define the
trend, you must understand that you are not trying to find a setup or an
entry. You are just trying to see in what direction the interest of majority of
the traders is. Bias is something that tells you whether to fade the herd or go
with them. So dont confuse between those two.
There will be two possible scenarios the moment you shift your focus to TTF
from HTF chart.

1.

Market trading within the structural framework you have

drawn using HTF chart.
2.
Market trading at the structural framework you have draw
using HTF chart.
The second scenario is a bit tricky to define the trend so I will talk about it at
the end of this article or in a separate article if the present one turns out to
be lengthy. So lets start with the first scenario now.
If you are a day trader, the first question you need to ask before defining the
trend structure is,
Do I need to consider overnight data or not ?
This is where you need to spend some time with charts again. It depends on
the markets you trade. I trade CL, 6E and ES.
For CL , I consider data from London open, ie. ( it starts from 3 AM EST)
For Forex futures, I consider the whole 24/7 data.
For ES, I dont consider the overnight data, ie. (it starts from 9:30 AM EST)
If you are trading Indian markets like Nifty, you dont need to worry about it
as there wont be any overnight data.
Note :TTF chart. I consider 24/7 data for drawing HTF levels.
Whatever you do, be consistent with your approach and analyze the results.
Otherwise you will be in an endless loop searching for the perfect session
template and thats not what you want. Simply put, remove all the data from
your TTF trend analysis where market stays dead most of the time.
Now, give an alphabet or a number to the swing highs and lows starting from
the left. For the explanation sake, lets assume that I am trading CL. So I start
identifying the swing highs and swing lows starting from 3 AM EST, ie. 12:30
PM Indian time. It looks like this.

The whole discussion last week in my FB page was about swings and swing
pivots. So I dont want to talk much about them in this article and I am
assuming that you are already good at identifying them. Refer the following
image for a quick recap.

Scenario 1:- (When market trades within HTF structural framework

boundaries) :-

Starting from the first swing high or swing low you marked on the TTF chart,
observe the swings and try to identify the trend structure with the help of the
following image,

In the range definition, I mentioned that 4 swing pivots within an impulsive

move. It need not be impulsive.
In the trend definitions, I mentioned acceptance above swing highs and
swing lows to complete the cycle. Remember that we only need that at the
start. I mean, once a cycle completes, you dont need acceptance beyond all
the swing highs or swing lows following that cycle. If there is acceptance,

then the trend is healthy. If there is unacceptance, then the trend is weak. In
both the cases, we dont look to fade the trend till it reaches the HTF level or
the trend changes (More about this in the next article).
Now look at the first CL image I have shared. Neither there is a cycle to call it
a trend nor there are 4 pivots within a swing. So the trend structure is
unclear and I dont need to move forward with my analysis. Staying away is
what I need to do.
Trend Change :Once you identify the trend structure, the next thing you need to look for is
when the trend will change.

Up/Downtrend Down/Uptrend

Trend-Range

Range-Trend
Before going into that, I would like to give one more explanation for the word
I often use Push Back
Push Back :If the market breaks a level or a swing pivot and immediately gets rejected
without forming any acceptance or unacceptance or rejection PA, I call it as a
push back.
Ex:- Single candle break and immediate rejection, piercing the level by few
ticks and rejection in the same candle etc.
1) Up/Downtrend Down/Uptrend :-

The image is self explanatory. Breaking the trend violation pivot and
acceptance beyond that changes the trend. Vice versa for the downtrend.
2) Trend Range:Nothing to explain here as well. 4 pivot confirmation withing a swing turns
the trend into a short term range. Just like the way it is shown in the 3rd
image of this article.
3) Range Trend:Breaking the range boundary and acceptance beyond the range boundary
gives a potential trend direction in the direction of the breakout. Trust that
direction till a clear trend establishes in the direction of the breakout or till
market totally proves you wrong.
Finally, we shouldnt ignore whats obvious in spite of all the rules for the
trend definition we got. Lets talk about that as well. I call it as a visual trend.
Visual trend :When market has been making clear higher/lower swing highs and swing
lows from a long time, you dont need to look for some cycle completion or
something else. Just go with the structure thats obvious.
Here, the word from a long time is a bit subjective. So look at historical
charts in the markets you trade and quantify that too rather than messing it
up. I personally consider something as a visual uptrend if there are more
than three higher swing lows. And vice versa for the visual downtrend.
Dont do the mistake of calling something as a visual uptrend or a visual
downtrend too early looking at strength in the swings. Looking for the cycle
completion is of the primary focus. Remember that these visual trends
happen so rare in the markets (Not more than 2 days in the whole month in
5min. chart).
I hope I covered everything related to defining the trend structure when
market is trading within the HTF structural framework and feel free to let me
know if I miss anything. I will talk about how to deal with the market when
market is trading at the HTF level in the next article as this article is already
more than 1400 words.

Trend Structure.. Part 2

Hello everyone,

Last weeks article covered about the trend structure when market is trading
within the HTF structural framework. This article is about dealing with the
market when it is trading at the structural boundary.
There are of course million ways to deal with price interaction with major S/R
levels. What I am going to explain here is just one of those and is not the
only best way. Just take this as an input, test it yourself and make it your own
if the results are satisfying. Nothing is perfect in this arena.
Before going into how part of the article, it is important to understand the
expectations on HTF level. By now I assume that you are already aware of
the procedure I use to draw the structural framework. If you missed that, you
can find it here.
Expectations on HTF levels :1.
The HTF levels are expected to reverse the weak trends with a test of
the level. Please make a note that its a weak trend, not a weak swing.
2.
When market breaks a HTF level and is pushed back without showing
any information on acceptance, unacceptance or rejection, dont treat it as
a breakout. Just treat that as a test of the level.
3.
When market breaks a HTF level and gets accepted, dont carry
forward the trend structure from the previous structural framework. In
other words, the scope of the trend structure at any point of the time is
restricted to the framework that the market is in. I will discuss in detail
about this later in this article.
Alright. Lets consider different scenarios that are possible when market is
interacting with a HTF level. In all the following images, the red lines
represent the HTF boundaries and the blue lines represent the range
boundaries.
1) Trending Market :-

Scenario 1:As it is just a pushback, we dont treat that as a breakout of the structural
framework. Hence existing trend is intact. In this case, the trend is up, the
bias is up at the hard right edge . Looking for a PB trade on corrective down
leg, or a CPB trade/ bear trap entry if the downleg is impulsive are the higher
odd options rather than looking for a reversal till the trend structure changes.
Scenario 2:Market broken the HTF level and got accepted. This is a new structural
framework and we should not carry forward the trend structure information
from the previous structural framework. Here the bias is up, but there is no
trend yet. BPB on corrective downlegs, BOFF on impulsive downlegs, fading
BOs against the bias till a new trend establishes above the HTF level or till
market comes down the level and gets accepted below are the higher odd
options (That trend can be down as well).

Scenario 3:The trend is strong, but there is rejection from the HTF level. Odds are in
favor of the bias given by the HTF level. Here, the trend is up and the bias is
down. You must decide whether to take the CT trade or not depending on the
context. But the CT trade is a risk worth taking and should step aside when
stopped out.
Scenario 4:Strong trend, broken the HTF level and is not accepted. As it entered into the
new structural framework, there is no trend yet, but the bias is against the
breakout. Look for a BOFN (BO- Unacceptance-BPB-FTC) and fade the
breakout till a new trend establishes beyond HTF level or till BOFN fails
(Candle close above the level after BOF).
Scenario 5:Weak trend testing the HTF level. As HTF levels are expected to reverse the
weak trends, the bias is against the trend at the hard right edge of this chart
(Trend is up and the bias is down). This must reverse the trend quickly.
Always be prepared to reverse the bias when the CT swing turned out to be
corrective.
Scenario 6:Weak trend, broken the HTF level and got accepted beyond. Market entered
into new structural framework here, so we shouldnt carry forward
information related to the trend structure from the previous framework. In
this case, the bias is up, but there is no trend yet. BPB on corrective
downlegs, BOFF on impulsive downlegs, fading BOs against the bias till a
new trend establishes above the HTF level or till market comes down the
level and gets accepted below are the higher odd options (That trend can be
down as well).
Scenario 7:Weak trend, broken HTF level and is rejected. Cant get anything better than
this. The trend is up and the bias is strongly down in this case.
Scenario 8:Weak trend, broken the HTF level and is not accepted. As it entered into the
new structural framework, there is no trend yet, but the bias is against the
breakout. Look for a BOFN (BO- Unacceptance-BPB-FTC) and fade the
breakout till a new trend establishes beyond HTF level or till BOFN fails
(Candle close above the level after BOF).
2) Ranging Markets:-

Scenario 9:Ranging market, broken the range boundary, tested the HTF level and
pushed back. As there is no breakout of the framework yet, the bias given by
the previous trend structure stays intact. Here the bias is up and the trend
structure is a range. BPB on corrective downlegs, BOFF on impulsive
downlegs, fading BOs against the bias till a new trend establishes above the
range boundary or till market comes down the level and gets accepted below
are the higher odd options (That trend can be down as well).
Scenario 10:This is similar to scenario 5. Test of the HTF level with weakness. Trend
structure is range and the bias at the hard right edge of this chart is down.
Scenario 11:This is similar to the scenario 6. Market entered into new structural
framework here, so we shouldnt carry forward information related to the
trend structure from the previous framework. In this case, the bias is up, but
there is no trend yet. BPB on corrective downlegs, BOFF on impulsive
downlegs, fading BOs against the bias till a new trend establishes above the
HTF level or till market comes down the level and gets accepted below are
the higher odd options (That trend can be down as well).
Scenario 12:-

Similar to scenario 3. We have to take the decision whether to go against the

strength of the existing trend structure or not depending on the other
context gathered from the chart. Trend structure is a range and the bias is
down here.
Scenario 13:Similar to scenario 4. As it entered into the new structural framework, there
is no trend yet, but the bias is against the breakout. Look for a BOFN (BOUnacceptance-BPB-FTC) and fade the breakout till a new trend establishes
beyond HTF level or till BOFN fails (Candle close above the level after BOF).
Sure there might be dozens of other interactions possible in the real markets,
but we can put them into one the above 13 scenarios.
I have used the setup names like PB, CPB, BOFN, BOFF, BPB just to make
sure you understand my point. Just focus on the trend structure and the bias
in a given scenario. Setups,entry levels and the entries just pop out of the
chart themselves once you are good at maintaining the feel for the market.
Did I make the concepts complicated?
Let me put it simply as I know that you will understand it better.

When market breaks out the HTF level, Forget about the existing
trend, take the bias given by the acceptance and unacceptance till a new
trend establishes in the new framework .
When market tests the level with a push back, fade if the existing trend
structure is weak (or) trust the bias given by the existing trend if the
existing trend structure is not weak.

What is the trend structure at this point of time?

What is the bias at this point of time ?
You must have answers for these questions before touching the mouse or
keyboard to place the entry order. In fact, you must have answers for these
questions even before uttering the name of the setup. Trust me, setups just
pop out of the chart. Dont dig deep into the charts for them.
Ufff.. This article took more effort than I thought. But its totally worth it. I
hope this clarified a lot of things about how I deal with trend structure when
HTF level comes into play and feel free to post your queries if you have any.