Market Structure

Summary

In this video, Mando breaks down his trading model, focusing on the three key components: market structure, liquidity, and imbalances. He explains how to identify bullish and bearish trends by analyzing price movements and ranges, with an emphasis on higher time frames. The model involves mapping out price runs, recognizing discount retracements, and using imbalances as confirmation for trades. Real-life examples from stocks like Apple and Nvidia illustrate how the model can be successfully applied in practice, offering a systematic approach to trading with an emphasis on risk management and strategic entry points.

Takeaways

• 😀 The market is fractal, meaning it can be viewed from multiple time frames, allowing traders to have different short-term and long-term views simultaneously.
• 😀 Higher time frame analysis is crucial as it tends to dominate and provide the overarching market direction, making it the most reliable indicator of market structure.
• 😀 Identifying a trend or market structure is about recognizing when a high or low has been taken out, which shifts the market from bullish to bearish or vice versa.
• 😀 Market structure is a better term than 'trend' because it focuses on the broader context of price action, not just directional movement over a short period.
• 😀 In a bearish market structure, anything above the 50% retracement level is considered a 'premium' for shorting, while anything below 50% represents a 'discount' for entering a long position.
• 😀 Liquidity is a key component of market structure and can be used to predict price targets, whether in a bullish or bearish market.
• 😀 To increase the likelihood of a successful trade, traders should wait for a retracement to the 50% mark, ideally in discount territory, before entering positions.
• 😀 An imbalance in the market (where buy and sell orders are not balanced) can indicate a key entry point, such as in a discount area for a bullish position or premium for a bearish position.
• 😀 SMT Divergence (similar market divergence between assets like NASDAQ vs. S&P) is an additional concept that can indicate potential market shifts and opportunities.
• 😀 Traders should also recognize when a higher time frame liquidity breach occurs, such as breaking past significant highs or lows, which can signify a market reversal or continuation.

Q & A

What is the Mando Model, and what are its key components?

The Mando Model is a trading framework that integrates three key components: market structure, liquidity, and imbalances. These elements help identify trade setups by analyzing price movements and understanding the overall market direction.

What does 'fractal market structure' mean in the context of the Mando Model?

Fractal market structure refers to the idea that market patterns can be observed on multiple timeframes. This allows traders to develop both short-term and long-term market perspectives, where a longer-term bearish outlook can coexist with a short-term bullish bias.

How does the Mando Model identify market structure shifts?

A market structure shift is identified when a recent high or low is breached. If a recent low is taken out, the market structure is considered bearish; if a recent high is broken, it signals a bullish market structure.

What is the significance of the 50% retracement level in the Mando Model?

The 50% retracement level is seen as 'fair value' or equilibrium in the market. In a bearish structure, anything above 50% represents a potential discount for short entries, whereas, in a bullish structure, it’s a discount for long entries.

What role do imbalances play in the Mando Model?

Imbalances are critical in confirming trade entries. They represent areas where price has moved sharply without being filled, creating a zone of supply and demand imbalance. These imbalances are used as confirmation for entering trades at discount levels.

How does the Mando Model apply to real-world stock trades?

The Mando Model has been applied to stocks like Apple, Nvidia, Netflix, and others. By identifying liquidity sweeps, retracements, and imbalances, traders can pinpoint optimal entry points. For example, Apple’s recent liquidity sweep and 50% retracement confirmed a bullish setup according to the model.

Why is it important to use higher timeframes in the Mando Model?

Higher timeframes are important because they generally dictate the overall market direction. A shift in market structure on a higher timeframe often takes precedence, and trades should align with this larger trend to increase the likelihood of success.

What is the significance of a liquidity sweep in the Mando Model?

A liquidity sweep occurs when price moves through a significant level, taking out liquidity. This indicates that the market is likely to continue in the direction of the sweep. Identifying these liquidity sweeps helps traders spot potential reversals or continuations in the market.

How does the Mando Model handle trade setups when higher timeframe liquidity is breached?

When higher timeframe liquidity is breached, it can signal that the market may be entering a reversal phase. In these cases, the Mando Model suggests caution, as the market structure may shift, and the trade setup may no longer be valid.

How can traders use imbalances to confirm discount retracements?

Traders use imbalances to confirm discount retracements by looking for price moves into these areas, indicating that price is correcting back to an equilibrium zone. When price reaches a discount zone and an imbalance is present, it strengthens the case for entering a trade in the anticipated direction.