1. Most market evolutions go through the processes of budding, development, peak, exhaustion, and reversal.
If "trend" is a typical right-side trade, a follow-up after a reversal, then "structure" is a typical left-side trade, a qualitative measure of momentum from peak to decline. Our tracking research on "structure" aims to capture the critical point of reversal and serve the trend more delicately.
2. Before the structure forms, there must first be a state: dulling.
Dulling is an inevitable path to structure formation. So what is dulling? To put it simply, it is not exhibiting the state that should be shown, appearing out of sync. When the price makes a new low and the MACD's DIF value does not make a new low, and two negative bars appear, it is judged to be dulling. When dulling occurs, the moment DIF turns, the structure is formed. Dulling is a state; structure formation is a moment.
3. Structures are divided into bottom structures and top structures.
The previous section took the bottom structure as an example; conversely, it would be the top structure. In two waves of the same direction, there must be at least two or more opposite angular lines in between to separate them, observing changes in momentum to track and determine the turning point of speed from peak to decline. It must be noted that all prices must be based on the closing price of the cycle; only after the cycle is complete can the closing price be finalized, and the corresponding indicator values will also be finalized.
4. Structural theory applies to different time frames.
From daily to weekly, down to 15-minute and 1-minute charts. Different cycles correspond to different levels; the larger the level of the cycle, the greater the strength and influence time produced after the structure forms. Large cycles constrain small cycles, and small cycles obey large cycles. If "cycle resonance" occurs, that is, multiple cycles have structure formation, the strength and influence time will be even higher, which is not common.
5. From the perspective of quantitative standards, the trading standard of the "trend channel" is clear at a glance, with the upper and lower channel prices visible each day; the trading standard of "structure" is also clear, which is the moment of the DIF turning after dulling, when the structure forms. Two months ago, I conducted a one-year structural analysis of Bitcoin. Over the year, the daily level bottom structure appeared once, and the top structure appeared twice, corresponding precisely to the lowest and the two highest points.
6. Situations with a 100% success rate like this are definitely not the norm.
Not every important high and low point will be accompanied by the formation of a structure, nor will every structure formation necessarily lead to a trend reversal. It is only said that when the structure forms, there is a probabilistic advantage in trading. If the structure ultimately fails and the market moves in a low-probability direction, corrections must be made in a timely manner. The essence of trading is to bet on places with high probabilities while guarding against low-probability risks.
7. So, how do you make corrections?
Sometimes, after the structure (bottom or top) forms, the market may disappear, continue to dull, and then form a new structure again, thus entering a tug-of-war. However, remember one thing: if the position bought during the structure formation moves in a low-probability opposite direction, then corrections must be made (stop loss or buy back), and the quantitative standard for correction is: dulling disappears. That is, the DIF value drops below (or rises above) the leading value.
8. Operating solely by "trend channels" can still yield significant profits because the cryptocurrency market has short periods of volatility with large single-sided amplitudes.
However, operating solely by "structure" will yield much poorer results, even though its success rate is relatively high. The triggering frequency at the daily level is very low, and using smaller time frames will yield much poorer results. More importantly, "structure" only provides a quantitative standard for buying (selling) + a quantitative standard for corrections, without forming a trading closed loop.
9. For example, if you buy in a bottom structure, but there is no standard for selling because not every high point will have a top structure. It is very likely that what you wait for in your position is not a top structure but another bottom structure after a pullback. What should you do? You might fall into the trap of emotional trading.
Thus, not only must buying have a quantitative standard, but selling must also have a quantitative standard. Both buying and selling should have legal grounds to be considered a mature and stable trading system.
10. Therefore, the characteristics of "structure" are very distinct, and using it alone cannot maximize its effect. Only by combining it with "trend" can one achieve the effect of 1+1>2.
"Trend" and "structure" are, in my view, a perfect match. They lay the foundation for the trading system, and what remains is simply to add position management strategies and other indicators as support based on them.
