Structure mapping is essential for day trading, scalping and swing trading gold.
It is applied for trend analysis, pattern recognition, reversal and trend-following trading.
In this article, I will teach you what is structure mapping, how to execute structure mapping in Gold trading and how to apply that for making accurate predictions and forecasts.
Take notes and let's get started.
What is Structure Mapping
Let's discuss first, what is structure mapping?
With structure mapping, we perceive the price chart as the set of impulse and retracement legs.
Structure mapping can be executed on any time frame and on any financial market.
Look at a Gold chart on a 4H time frame. What I did, I underlined significant price movements.
Each point where every leg of a movement completes will have a specific name and meaning.
On a gold chart, I underlined all such points.
These points are very important because it determines the market trend and show the patterns.
Highs & Lows
When you execute structure mapping, the first thing that you should start with the identification of a starting point - the initial point of analysis.
On a price chart, such a point should be the highest high that you see or the lowest low for a certain period of time.
If you start structure mapping with a high, that high will be called Initial High.
A completion point of a bearish movement from the Initial High will be called Lower Low LL.
A consequent bullish movement that completes BELOW the level of the Initial High or Any Other High will be called Lower High LH.
A consequent bullish movement that completes on the level of the Initial High or Any Other High will be called Equal High.
A bullish movement that completes above the level of the Initial High or Any Other High will be called Higher High HH.
If you start with the low, such point will be called Initial Low.
A completion point of a bullish movement from the Initial Low will be called Higher High HH.
A consequent bearish movement that completes ABOVE the level of the Initial Low or Any Other Low will be called Higher Low HL.
A consequent bearish movement that completes on the level of the Initial Low or Any Other Low will be called Equal Low.
A consequent bearish movement that completes below the level of the Initial Low or Any Other Low will be called Lower Low LL.
Look how I executed structure mapping on Gold chart.
Starting with the lowest low, I underlined all significant price movements and its lows and highs.
You should learn to recognize these points because it is the foundation of gold structure mapping.
Combinations of these points will be applied for the identification of the market trend, trend reversal and patterns.
Market Trend
According to the rules, 2 lower lows and a lower high between them are enough to confirm that the market is trading in a bearish trend.
BoS & CHoCH in Bullish Trend
In a bullish trend, a bullish violation of the level of the last Higher High will be called a Break of Structure BoS. That event signifies the strength of the buyers and a bullish trend continuation.
A bearish violation of the level of the last Higher Low will be called Change of Character CHoCH. It will mean the violation of a current bullish trend.
BoS & CHoCH in Bearish Trend
In a bearish trend, a bearish violation of the level of the last Lower Low will be called a Break of Structure BoS. It is an important event that signifies the strength of the sellers and a bearish trend continuation.
While a bullish violation of the level of the last lower high will be called Change of Character CHoCH. That event will signify a violation of a bearish trend.
Complete Structure Mapping
That's how a complete structure mapping should look on Gold chart.
With the identification of the legs of the move, highs and lows, BoS and ChoCh you can clearly understand what is happening with the market: you can identify the direction of the market, global, mid term and short term sentiment.
Gold was trading in a bearish trend.
Once the level of our Initial Low was tested, the market started a correctional movement and started to trade in a minor bullish trend with 2 consequent Breaks of Structure.
Once some significant resistance was reached, the market reversed. We saw a confirmed CHoCH and the market returned to a global bearish trend.
Structure mapping is the foundation of technical analysis. It is the basis of various trading strategies and trading styles. It is the first thing that you should start your trading education with.
I hope that my guide helped you to understand how to execute structure mapping in Gold trading.
