Market Structure / Swing Points Question

slugFX

Well-Known Member
I am almost done reading & taking notes on "Larry Williams - Long Term Secrets to Short Term Trading," and have a question on his talk about market structure. Below is a snippet of text from his Market Structure chapter:



and then an image example:



Doesn't the bar that the arrow is pointing at violate his rule of inside day's? Or is it a valid swing point because the next day after the inside day did not break the high and ended up moving below the "short-term high"?

I think I have answered my own question, but I just want to be sure.
 

jack

Administrator
Staff member
Sounds like (from the text you provided) the purpose is to focus on just the days that push into a price that the previous day hasn't already covered when mapping out swing points.

The bar you're pointing to is an inside bar, but there aren't any swing points marked on that inside bar directly so it so it still complies with the rule.

The previous two bars before it both pushed into prices that were not engulfed by their respective previous days, and thus, they both have marked swing points on them.

The confusing one was the lower bars near the bottom of the image, which I had to look closely on since they are nearly the same, with the swing point painted on the bar that goes down by a few pixels (so probably by just a few pips given the scale of this chart) more than the bar before it.

So in all it looks proper.
 

slugFX

Well-Known Member
I probably should have provided more context.. for some reason I had the assumption that most people have read the book. Below is how he defines swing highs & lows:

Short Term Low: Any time there is a daily low with higher lows on both sides of it.
Short Term High: Any time there is a daily high with lower highs on both sides of it.

So basically these swing highs and swing lows are 3 bar patterns and from my understanding the text is saying to ignore the swing points that have an inside bar that is completing the 3 bar pattern. That is why I was pointing the arrow to the one directly after the swing high. It was an inside bar of the swing high.

Maybe I am misunderstanding the text.. idk! That's why learning to trade is so hard! It can be hard to interpret what author's are trying to say sometimes and is more easily understood via video. I don't have any trading friends IRL that can help me :-\
 

jack

Administrator
Staff member
Ohh...

So in that case, we ignore the inside bar and it makes the marked swing high incorrect since it no longer has a 'lower high' on each side of it.

But wouldn't that just default to the next bar in the sequence, in this case being far lower?

If so, that tells me the marked swing high is pretty useless since you can only confirm it once price has moved quite the significant amount away.
 

jack

Administrator
Staff member
slugFX said:
Maybe I am misunderstanding the text.. idk! That's why learning to trade is so hard! It can be hard to interpret what author's are trying to say sometimes and is more easily understood via video. I don't have any trading friends IRL that can help me :-\
No worries, we've all been there.

Consider two things:

1) By talking it out, we all partake and learn along with you.

2) By explaining it in your own words and working through the method, you yourself end up with a deeper understanding of what's being conveyed. Our mind stores and recalls information a little differently when we're expected to teach it to other people..
 

slugFX

Well-Known Member
Jack said:
Ohh...

So in that case, we ignore the inside bar and it makes the marked swing high incorrect since it no longer has a 'lower high' on each side of it.

But wouldn't that just default to the next bar in the sequence, in this case being far lower?

If so, that tells me the marked swing high is pretty useless since you can only confirm it once price has moved quite the significant amount away.
Yes, I think you are correct. I was confused at first because I thought by ignore he meant to ignore the whole 3 bar setup and not just that bar (and look at the next bar).

You are right in a sense that price has move quite a ways away by the time the fractal has formed and I am still trying to understand how to use market structure in my trading, but basically these short-term swing highs/lows nested together form intermediate-term swing highs/low which form long-term swing highs/lows and based on this you can use it as a bias to see where the next swing may be reaching for.

You can also use the short-term swing points as trend references and when a swing high in a downtrend is broken to the up side, then you would start looking for longs.

Here is another chart provided in the book that show these "swings":


Here is an example as using it as a trend reference:


I should probably get some sleep now so I can wake up for London Open and then eventually work in morning (man, this is a grind).
 

jack

Administrator
Staff member
slugFX said:
You are right in a sense that price has move quite a ways away by the time the fractal has formed and I am still trying to understand how to use market structure in my trading, but basically these short-term swing highs/lows nested together form intermediate-term swing highs/low which form long-term swing highs/lows and based on this you can use it as a bias to see where the next swing may be reaching for.

You can also use the short-term swing points as trend references and when a swing high in a downtrend is broken to the up side, then you would start looking for longs.
In general, fractal points are repainting, so they act as more of a mark or reference point than a trade signal on their own (allowing for trend identification as you already mentioned, or just a line in the sand where you can base a trade on should price approach it again.)

The fun part is more how they are incorporated into a working strategy. Since once you understand how these points are established (as touched upon in this thread) you can start to pick out when to run away from a strategy based on how the points are employed. (I can't tell you how many times I've stumbled upon green traders trying to pitch a system that uses fractal points as an entry signal on its own... you know, because it looks so good in hindsight on a chart.)
 

TheInnerCircleTrader

Well-Known Member
The Swing Point is simply and high with lower highs on both sides of it for a Swing High... and a low higher lows on both sides of it for a Swing Low. I disregard any concern for inside days and the like... do not overcomplicate it.

It really is that simple! ;)
 

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