Pitchfork trading: market structure and pitchfork selection

I hope you have gone through previous post and especially its exercise!

The solution to this exercise will lead us to market structure definition and will pave the way to selecting the right pitchfork for the right market configuration.

Exercise reminder: We consider the last 4 swing points, start with a peak SP4. SP3 being a trough is below SP4. SP2 is above SP3 and SP1 is below SP2. Easy?

Now if I am looking from the outside, how many figures can these make? That was the question!!! Try it by yourself on a piece of paper. SP2 can be above or below SP4. SP1 can be above or below SP3. Figures are obtained by linking SP4 and SP2 by a straight line, SP3 and SP1 by an other line. Eventually we can only make SIX different geometrical figures!!! Think and draw a bit more!!!

Here they are:

Figure 1 – Bubbling market
Figure 2 – Unstable market
Figure 3 – Reversal market
Figure 4 – Counter trend market
Figure 5 – Flat market
Figure 6 – Strong trending market

That is all there is to market structure. Channel with parallel lines are exceptions, as they comply to 2 of these figures. Note you get exactly same figures in the bearish case. You don’t need to remember hundreds of figures :-)))

I recommend that you give names to these figures, whatever they can make you think of, so you can refer to them more easily.

Exercise!!!! Now that you know all possible structure, can you draw a diagram of transition between figures? E.g. starting from figure 2, which I usually call unstable market, what are the possible next ones?

The knowledge of question just above is important. Because we all hate flat markets (figure 5) but as you will figure out easily, flat market can consolidate even more (figure 5 can transistion to another figure 5) while an unstable market (figure 2) will always lead to directional market (check it out!!)

Now here revealed exclusively to readers of this blog are the pitchforks you need to select for each market structure to get buy signal as explained in previous posts.

What are those mini pitchforks? How do we draw them? Plenty of open questions which we will see in next lessons with plenty of illustrations!

In the meantime, trade safely!