 In this short video we'll answer the question what is market structure and why is market structure important? We'll also look at how you can use market structure in your trading plan, some examples and trade setups that lean on market structure, and the limitations of looking at market structure in isolation. Market structure can be defined as the framework or structure that any given market is currently trading in. Market structure can help you understand the behaviour, condition and current flow of the market. It highlights support and resistance levels, swing highs and swing lows. There are three broad types of structure within the market. Bullish market structure involves a sequence of high highs and higher lows forming an uptrend. Bearish market structure is where a sequence of lower lows and lower highs form a downtrend. Sideways market structure or arranging market includes equal highs and equal lows. Market structure is important as it can influence the liquidity and price action of a market. It's also one of the most commonly used techniques to understand trends, observe shifts in momentum, identify potential reversal points and get a feel for current market conditions. One way to use market structure is to define if-then scenarios. For example, if a structure break occurs during a bullish trend, then look to get short on a pullback. We'll look at some actual examples of this in just a moment. First, a note on the fractal nature of market structure. There are often different structures in play across different timeframes. For example, while the overall market structure on the higher timeframe may be trending up, the lower timeframe structure may be in a current downtrend as the market pulls back and awaits an influx of buyers to continue the higher timeframe move. Here's an example of how you can use market structure to enter a trade. Let's first plot the prevailing highs and lows in this segment of price action. Price first rallies to a high, makes a higher low, and then rallies once again to create a new high. This second leg can be further broken down into swing highs and lows as follows. Now we have some context. Let's take a closer look at the price action from 7.30 onwards. If we further break down this leg into microstructure, we can see that if then scenario that we discussed earlier. If a lower low is made, look to short the pullback. The final confirmation is a lower high and aggressive sellers entering the market. Now, many of you will be thinking, if only it was that easy, right? And of course, this is all cherry-picked hindsight for the purpose of providing an example of how market structure can be used when trading. But this leads nicely onto the limitations of market structure and the final trade setup that I'm going to share with you. It's important to remember that the market can do anything at any given moment. Uncertainty of the market must be embraced and accepted. While market structure can provide clues, there are absolutely no guarantees and it only takes one significant aggressive buyer or seller to change the momentum. However, one way to increase your success in the market is to look for confluence. For example, combining basic market structure principles with order flow. Let's jump back to our example. A reminder of the microstructure short setup. We create a higher high, a higher low, a higher high and then market structure is broken as a lower low is made. A lower high then helps confirm the reversal and the market begins to rotate. But if you look closer, you may have noticed that we actually get the exact same setup in our previous leg. Only there is no follow through and price rallies to create a new high. In terms of market structure, the setup is identical. So how can we know when we'll get our reversal or when price will continue grounding higher? Remember we can never be certain, but looking at confluence and examining the order flow around a price action can help. Let me introduce you to the heat map so we can compare these two seemingly identical setups in more detail. The heat map is a visualization of the order book plotted over time. The brighter white colors represent more liquidity in the book. You can see resting cell orders above the current price on the offer and resting by orders below the current price on the bid. So how can the heat map provide confluence for our short setup? Firstly, note the resting high liquidity on the offer at 4018. This is significant not only because it represents high liquidity, but also because it's been in the book for over an hour. These liquidity areas often act as magnets for the price. The fact that the price traded into this resting liquidity and filled the orders is significant and creates a clear distinction between the first market structure break that didn't play out and the second market structure break that did play out. Next, note how as price approaches 4020, liquidity is being added to the offer. If the opposite had been true and orders were being pulled, it could suggest that these market participants aren't wanting to get filled. But in this case, we can be more confident in taking a short position as traders are stacking their cell orders. Again, this order flow observation is only present on the second market structure break, adding confluence to our short trade. The final observation is more for trade management and can help psychologically keeping you in the trade for longer. As soon as price moves through 4013, cell orders are added to the offer, which is called a book flip and is a good sign for continuation. Hopefully, you can see the benefit of combining market structure with order flow. Looking at market structure alone, you may have been inclined to take the short on the first setup, resulting in a stopout. But if you look beyond the candle structure, the heat map clearly shows a difference in order flow between the two scenarios, favouring one over the other. Backtesting these setups and putting together a robust trading plan can boost your chances of success in the market. To learn more about market structure or to download Bookmap for yourself, head over to our website bookmap.com.