While waiting for a Silver setup today, I realised I have never properly explained one of the most important ideas behind my strategy: market structure.
I am looking at the Silver chart right now. It has been in a downtrend, but for a while it has been moving sideways in consolidation. Price has done a BOS and created a good FVG, with multiple touches to that FVG without a clear retracement into it — and it has also created a liquidity zone inside the FVG.
I may or may not get a trade out of this. That depends on price, not on me. For now, I am going to wait — and use the time to explain the concept I use on every single trade.
The Two Phases of the Market
What I understand about market structure is this: at any given time, the market is in one of two phases. It is either trending, or it is consolidating — moving sideways. And the market is constantly shifting between the two.
Consolidation usually appears when buyers and sellers are temporarily balanced. Neither side has enough strength to push price into a new trend, so it moves sideways until one side wins out.
The trend itself can be split into two parts — an uptrend and a downtrend. Instead of memorising these phases separately, I like to think of them as one continuous cycle. Here is a flowchart I made to show how the market moves between them.
You can see from the flowchart that the market moves from an uptrend into consolidation. From consolidation, it can either continue the uptrend or reverse into a new downtrend. After a downtrend, the market moves back into consolidation again — and from there it may continue the downtrend or reverse back into an uptrend. This cycle repeats endlessly.
How to Identify an Uptrend
An uptrend is simply a series of Higher Highs and Higher Lows.
Price breaks recent highs and creates new ones above the previous high — called a Higher High — and is unable to break the previous recent low, instead creating a new low above the previous one — called a Higher Low. The cleaner the Higher Highs and Higher Lows, the stronger the trend usually is.
How to Identify a Downtrend
A downtrend is the mirror image — a series of Lower Lows and Lower Highs.
Price breaks recent lows and creates new ones below the previous low — called a Lower Low — and is unable to break the previous recent high, instead creating a new high below the previous one — called a Lower High. The same rule applies here — the cleaner the sequence, the stronger the downtrend.
How to Identify Sideways / Consolidation
If price is not breaking either the highs or the lows, and is instead moving within a range between two price points, the market is in consolidation. Some consolidations are tight and narrow, others are wide and volatile — both still count as consolidation as long as price stays inside a defined range.
One Thing I Have Noticed
Most of my bad trades happen because I try to predict the end of consolidation before the market actually decides. I want to be early. I want to be the one who called the breakout before it happened. But the market does not reward that kind of guessing — it rewards patience until structure actually confirms itself.
Back to the Silver Trade
Now that we have covered the basics, let's look at a real chart.
Below is the Silver chart with the date, so you can check it for yourself at any time.
As you can see clearly, price was making Lower Highs and Lower Lows — a textbook downtrend. After some time, price started moving sideways within a closed range — the consolidation phase.
I am hoping for a short trade if price takes the upside liquidity — the blue zone marked on the chart — and gives a BOS continuing the downtrend. I prefer waiting for liquidity to be taken first because price often clears out stop-loss clusters before continuing in the direction of the main trend. This is a 1-hour chart.
One chart is never enough evidence. Journal it, test it, and let your own data convince you before you risk anything on it.
Bye for now, take care.
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