Lesson 4: Trend & Market Structure

Why this matters?

This really deals with how markets actually move over time. Most losses come from fighting the market.

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People:

• Buy because something “looks cheap”

• Sell because something “feels high”

• Trade reversals in strong trends

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Market structure stops that!

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If you understand structure, you stop guessing and start aligning. Trading with the trend is so much easier than trying to guess reversal areas or just thinking - "the price has gone down 50 or 60%, it has to bounce soon".

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What market structure really means?

Market structure is simply trying to deal with how price moves from one decision point to the next.

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Those decision points create:

• Highs

• Lows

• Trends

• Ranges

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This structure is the framework everything else sits on.

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The three structural states

All markets cycle between three states:

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1. Uptrend

• Higher highs

• Higher lows

• Pullbacks are opportunities, not threats

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The market is rewarding buyers. We're looking for longs (to buy) and potential hold stocks for longer term moves. 

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2. Downtrend

• Lower highs

• Lower lows

• Rallies are opportunities for sellers

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The market is punishing holders and price moves down. Don't hold if your market is in a structural bear market. 

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3. Range

• No clear progression

• Price oscillates between levels

• Breakouts attract attention - most fail

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Patience matters most here and you don't have to be in the market. Depending on your strategy, you can sit tight. Cash can be a position when managing your wealth. 

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Higher highs and lower lows

Forget perfection. Structure is about direction, not symmetry.

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An uptrend does not need:

• Equal pullbacks

• Clean angles

• Pretty charts

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There's a technical framework called Elliott Wave. This can be helpful but it requires some very technical ability in our view. Rather, lets keep this more simple and look for markets that are in uptrends. 

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Pullback vs reversal

This is where people get it wrong.

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Pullback

• Happens within a trend

• Respects prior structure

• Volume usually contracts

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Pullbacks reset momentum.

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Reversal

• Breaks structure

• Changes behaviour

• Often messy and volatile

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Reversals are harder to trade than trends.

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Breaks and change of structure

A break of structure happens when:

• An uptrend fails to make a higher low

• Or a downtrend fails to make a lower high

 

​Stan Weinstein's great book Secrets for Profiting in Bull and Bear Markets is a must read. Weinstein described markets moving through four repeating stages:

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Stage 1 – Basing

• Price moves sideways

• Volatility contracts

• Smart money accumulates quietly

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Nothing looks exciting here. That’s the point.

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Stage 2 – Advancing

• Structure turns upward

• Breakouts start to hold

• Pullbacks become buying opportunities

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This is where most of the money is made.

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Stage 3 – Topping

• Momentum slows

• Ranges widen

• Breaks of structure start appearing

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This is where one break becomes two.

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Stage 4 – Declining

• Structure rolls over

• Rallies fail

• Selling pressure dominates

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Capital preservation matters most here.

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Why this framework still works

Stan Weinstein's book is fair old now. He wrote it originally in 1988. Markets have changed. Human behaviour hasn’t and that's the key point. 

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Weinstein’s stages aren’t about prediction — they’re about recognition.

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When you combine:

• Market structure

• Multiple timeframe analysis

• And the idea that change happens gradually

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You stop trying to pick turning points and start responding to evidence.

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The key takeaway

You don’t need to call the top or bottom. We see so many of our followers and clients trying to catch falling knives - ie. price has fallen. A stock looks cheaper, but there could well be something more sinister going on. In every day human life, something that's cheaper, generally represents better value. But that isn't the case in stock markets. 

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You need to recognise:

• When the market is healthy

• When it’s deteriorating

• And when it’s hostile

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One break gets your attention. Two breaks change your behaviour. That mindset alone keeps you on the right side of most markets.

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Multi-timeframe structure

Especially if you're going to trade on smaller time frames, you must look at the larger time frame. 

• Weekly = big picture

• Daily = execution context

• Intraday = precision - but only if you're ready for day trading. We don't recommend that for beginners. 

 

Rule of thumb:

 

Trade in the direction of the higher timeframe structure.

This alone filters out bad trades.

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Why trends last longer than expected

Trends persist because:

• Positioning builds slowly

• Big money can’t move quickly

• Psychology changes in phases

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That’s why:

• Tops feel “obvious” early

• Bottoms feel “dangerous” late

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Structure keeps you on the right side!

Common structure mistakes

Avoid:

• Calling tops in strong uptrends

• Buying bottoms in downtrends

• Forcing structure where none exists

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If you have to convince yourself, it’s not there.

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A simple structure checklist

Before acting, ask:

1. What is the higher timeframe trend?

2. Has structure been broken?

3. Is this a pullback or a reversal?

4. Am I trading with or against pressure?

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If you’re against pressure, reduce size or step aside.

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What’s next?

Now that you understand structure, the next step is learning how to support decisions without clutter.

 

That means indicators - used properly! We don't use many but there are some handy ones!

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👉 Next lesson: Indicators – Helpful tools, not crutches