Strip a chart back to just its highs and lows and you’re left with the market’s own record of who’s winning, buyers pushing price into new territory or sellers dragging it into old territory, and reading that record is what market structure means. Everything else in this section, order blocks, fair value gaps, supply and demand, is a zone found within that larger structure, so it’s best to get this part right before layering anything else on top. ...
Before price can make an impulsive move in one direction, it usually spends time resting somewhere first, a stretch of chop where buyers and sellers are roughly matched, and that resting spot is what a supply or demand zone marks. It’s a close cousin of the order block, covering the same underlying idea, but drawn around the whole base rather than a single candle. What the zone represents A demand zone: the ranging base before an impulsive rally. A supply zone is the same idea before an impulsive decline. ...
A zone doesn’t have to stay what it was. A supply zone that finally gives way, that price pushes cleanly through instead of turning at, doesn’t just disappear off the chart, it often flips and starts acting as demand the next time price returns to it. The reverse is just as common, an old demand zone that breaks becomes resistance on the retest. This role reversal is one of the more useful things to watch for once you’ve got the basic zones down. ...
Before getting into this, a note. I use Steve Norman’s FVG indicator, and Steve’s tools can be found here. It draws these zones automatically, and while knowing how to identify them manually still matters, in practice I’m not hand-drawing boxes every morning. What is a fair value gap? When price moves fast, really fast, driven by momentum or a large order hitting the market, it sometimes skips through a whole stretch of prices without pausing to trade there, and buyers and sellers never get the chance to meet each other at those levels before the market’s already moved on. ...
Not every leg on a chart is doing the same job. Some moves are the trend actually going somewhere, and others are just the market working off the last move before it can continue, and learning to tell the two apart on sight is most of what’s needed before wave counting starts to make sense. What an impulse wave looks like An impulse wave is the trend doing its real work, price covering ground quickly and directly, with candles that mostly close in the same direction and don’t overlap each other’s ranges very much. It’s the kind of move that leaves large fair value gaps behind, because it’s outrunning the two-sided trade that would otherwise fill in every level along the way. If you had to describe it in one word, it would be committed. ...
Ralph Nelson Elliott, an accountant rather than a trader by background, spent the 1930s studying decades of stock market data and concluded that price doesn’t move randomly, it moves in a repeating rhythm of five waves one way followed by three waves back, over and over, at every size from a few hours to several decades. That rhythm is what Elliott Wave theory tries to count, and it’s built directly on the impulse and corrective distinction from the previous article. ...
An order block is the last candle standing against a strong move, right before that move takes off, and the interesting part is what it implies about why price so often comes back to visit it. What counts as an order block The last down candle before an impulsive rally, marked as a zone. Price returns to test it later. ...
Every stop-loss order sitting in the market is also, from a different angle, a resting order waiting to be filled, and clusters of those resting orders are what “liquidity” means in this context. Understanding where that liquidity sits, and why price so often seems to go find it right before turning, changes how you read the approach to an obvious level. Where liquidity collects Equal highs draw resting stops just above them. Price wicks through to run them, then reverses. ...
A market rarely goes straight from one trend into the next. Most of the time it pauses first, spending a stretch going nowhere in particular, and that pause is where the next move gets built. This idea traces back to Richard Wyckoff, an early twentieth-century trader who framed the market as cycling through four phases, and the two ranging phases, accumulation and distribution, are the ones to learn to spot while they’re happening, not only after the fact. ...
A clean uptrend on the five-minute chart can be no more than a small pullback inside a much larger downtrend on the four-hour chart, and trading the smaller structure without ever checking the bigger one is trading with only half the picture in view. Every concept in this section, structure, zones, waves, liquidity, looks different depending on which timeframe you’re viewing it from, and knowing how to move between them deliberately is what ties the rest of the section together. ...