Structure.. It’s necessity in the uncertain environment..
Firstly, what exactly is a Structure? Why do we need it ?
We all have studied about a primitive man in our high schools, the very first generation of us, humans. At the early stages, he used to live very selfishly, without considering anything about the other fellow beings. His food, his safety and his own desires are his utmost importance. He didn’t even have any idea what family means. He used to hunt some animals to satisfy his hunger, and when the animal which is stronger than him attacks, he surrenders due to lack of enough strength and the animal kills him. This went on for few years and later, the primitive man understood the importance of socializing himself and maintaining relationships with fellow humans so that the group in a whole will have the strength to defend from the monstrous predators. That is when the formation of tribes happened. They used to travel in packs. They oppose the alien creatures as a pack. They build some strategies with their experiences to efficiently protect their lives from the wild animals like forming a circle when in doubt of some alien creature presence etc. The man, a curious animal, improved and improved the way he lives and finally, ended up here in the 21st century, the civilized era… We now have traffic rules, constitutional rules, dating rules, borderlines for the countries etc. etc….. These were never there in the stages of primitive man’s era. We built these rules and rights for our safety and society is now totally Structured. If this long passage doesn’t clear your ambiguity about the structure, just remember this. We need a structure for our safety. When society is not structured, we have to live each and every second with a doubt of surprise attacks. Lets now get into the meat of this article, i.e. what is a structure and why we need it??
The structure is a thing constructed. A complex entity constructed of many parts. When you don’t have any control over the things that are going to happen, when there is no rational explanation about how and why things are happening, you need a structure to study the past and understand how we have reached to this point from an unknown point somewhere in the past, and to get a feel for how the future is going to be so that we can take decisions in the present either defensive precautions when the expected future is not good or offensive measures when you think there is a chance of taking advantage from the future. This resembles something that I have explained in the previous articles, isn’t it? Yes, you are right. 😀 This process is known as “Situational Awareness” which I have explained it here. Please bear with me for repeating this again and again throughout the blog. This is very very important and is not easy to achieve.
There is a famous saying in trading. “ Trading is 10% strategy, 20% money management and 70% psychology“. That 70% part includes understanding your own pshyc and also the psych of the other traders. It is impossible to predict what’s going on in other’s mind and how they will react with 100% accuracy. Of course, we can predict that to some extent but it is not cent percent accurate. So we can predict how the market might go, but we can never say how the market will go. So, we need a structure to understand that and to keep the odds in our favour before taking a decision. I think you understand the necessity of defining the structure. Simply put, this is the battlefield where we are going to plan and fight with other traders.
Many theories tried to define the structure of the market. We have Elliot Wave Theory, Gann theory etc. I heard somewhere that people use planetary movements to take trading decisions. LOL. But it is not wrong guys. When the environment is uncertain, there is no wrong and right theories. If something works for you, use it. If something doesn’t work for you, discard it. But don’t judge it.
As I have already mentioned in the about section of this blog, I am a YTC price action trader, student of Lance Beggs, and his theories work for me and I assure you that they will also work for you if you are clear with the basic nature of markets.
According to his book,
Market moves in a framework of support and resistance and when the framework is broken, it enters into a new framework of support and resistances.
Before going into the explanation of the above point, I have a few things to explain. I said that the market is a collection of traders making trading decisions. Those decisions results in the net order flow and the net order flow drives the market in a certain direction.
The core reason for the market movement is traders taking decisions. Traders are humans and they have memory. We humans don’t like to change a habit so easily. So does the market. The market has memory and it behaves in a certain fashion when price approaches a certain level where it has felt some unexpected force in the past. The market has inertia and it resists the change of environment and it tries to continue the same behaviour. Until the market shows clear evidence of reversal, don’t take decisions against the direction. I hope you are clear with the explanation till now. If you aren’t, please read this article again before proceeding further. I will post the continuation of this article tomorrow as I have some work to catch up. I will write about Support and Resistance in tomorrow’s article and it revolves around this memory and inertia concept. So be clear with the concepts are written till now to understand further. Good day!!