Focus on the market structure

D. Murali | Updated on October 08, 2011


The real secret to successful trading is the integration of money management and market structure, says Felipe Tudela in Trading Triads: Unlocking the secrets of market structure and trading in any market ( www.wiley.com). Urging one to become one's own market wizard, he reminds that other people's expectations are not your own.

“Forget all those market wizards. Their goals were achievable for them. Emulate other people in their market knowledge, but do not try to repeat what you hear others say about their success.”

It can be instructive to read that the known market wizards such as Warren Buffett, who is a role model for many investors, do not imitate others or seek to be imitated by others. Becoming your own market wizard, as the author explains, means you must trade a system that is profitable to you. The only real possibilities of success are those that you will discover by yourself, he adds. “Research a system that combines being profitable for you and fits your personality and trading style.”

Three elements

The trading model discussed in the book is based on ‘natural market movement that enables you to measure market fluctuations without your own subjectivity on it,' and it uses three elements – viz. the pivot, the triad, and the swing – to decode the ternary structure of the market, the structure born of oscillations.

The first of the three elements, the pivot, is defined in the book as the origin of every market movement, the foundation point at the beginning and the end of every market swing, a point at which the market changes direction. More esoterically, it is ‘an energy point, the elementary market particle.'

The swing is a market oscillation, born in a pivot, continues Tudela. The swings are divided into time/price units, that is, charted bars, and the alternation of swings is the primary market cycle, he elaborates.

While the common swings are upward and downward (occurring in free markets with prices oscillating even in sideways situations), the rarer one is the horizontal swing, a neutral point with prices staying the same along a time line (for example, when price controls prevent prices from expressing their true nature).

Miniature market model

The third element, triad, is a series of charted bars, not necessarily consecutive, in which the high of the middle charted bar is higher than the highs of the adjacent lateral charted bars and the low of the middle charted bar is higher than the lows of the adjacent lateral charted bars; or, the opposite.

Accordingly, it is either a descending or ascending triad. Describing the triad as a miniature model of the market and its primal cycle, the author observes that the high of the descending triad is the ending pivot of an upward swing and the beginning pivot of a downward swing; and that, in the case of the ascending triad, the lowest low is the end of a descending movement and the starting point of an ascending movement.

Towards the conclusion of the book, the author underlines the need to focus on the market structure, rather than getting lost in mathematical indicators. For an in-depth study by serious investors.

Published on October 08, 2011

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